As filed with the Securities and Exchange Commission on November 10, 1998
Registration No. 333-65039
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
Amendment No.1
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
INSILCO HOLDING CO.
(Exact name of Registrant as specified in its charter)
Delaware 274,371,346,361,367 06-1158291
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
425 Metro Place North
Fifth Floor
Dublin, Ohio 43017
(614) 792-0468
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Kenneth H. Koch
Vice President and General Counsel
Insilco Holding Co.
425 Metro Place North
Fifth Floor
Dublin, Ohio 43017
(614) 792-0468
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
Richard D. Truesdell, Jr.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: |_|
-----------------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
================================================================================
EXPLANATORY NOTE
This Registration Statement covers the registration of an aggregate
principal amount at maturity of $138,000,000 of 14% Senior Discount Notes due
2008 (the "Exchange Notes") of Insilco Holding Co. (the "Issuer") that may be
exchanged for equal principal amounts at maturity of the Issuer's outstanding
14% Senior Discount Notes due 2008 (the "Old Notes") (the "Exchange Offer").
This Registration Statement also covers the registration of the Exchange Notes
for resale by Donaldson, Lufkin & Jenrette Securities Corporation in
market-making transactions and by DLJ Investment Partners, L.P., DLJ ESC II,
L.P. and DLJ Investment Funding, Inc. (the "DLJ Mezzanine Investors") in resale
transactions. The complete Prospectus relating to the Exchange Offer (the
"Prospectus") follows immediately after this Explanatory Note. Following the
Prospectus are certain pages of the Prospectus relating solely to such
market-making and other resale transactions (the "Market-Making Prospectus"),
including an alternate front cover page, a section entitled "Risk
Factors--Trading Market for the Exchange Notes" to be used in lieu of the
section entitled "Risk Factors--No Public Market for the Senior Discount Notes,"
an alternate "Use of Proceeds" section and an alternate "Plan of Distribution"
section. In addition, the Market-Making Prospectus will not include the
following captions (or the information set forth under such captions) in the
Exchange Offer Prospectus: "Summary--The Exchange Offer," "Risk Factors--No
Public Market for the Senior Discount Notes," "The Exchange Offer" and "Certain
United States Tax Consequences of the Exchange Offer." All other sections of the
Exchange Offer Prospectus will be included in the Market-Making Prospectus.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
PROSPECTUS SUBJECT TO COMPLETION DATED NOVEMBER 10, 1998
Offer to Exchange
14% Senior Discount Notes Due 2008
Which Have Been Registered Under The Securities Act of 1933
For Any And All of The Outstanding
14% Senior Discount Notes Due 2008
of
Insilco Holding Co.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON DECEMBER
10, 1998, UNLESS EXTENDED.
Insilco Holding Co., a Delaware corporation ("Holdings" or the "Issuer"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal" and, together with this Prospectus, the "Exchange Offer"), to
exchange an aggregate of up to $138,000,000 principal amount at maturity of its
14% Senior Discount Notes due 2008 (the "Exchange Notes") which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a registration statement of which this Prospectus forms a part, for
an identical face amount of the issued and outstanding 14% Senior Discount Notes
due 2008 (the "Old Notes" and, together with the Exchange Notes, the "Senior
Discount Notes") of Holdings from the Holders (as defined herein) thereof in
integral multiples of $1,000 principal amount at maturity. As of the date of
this Prospectus, there is $138,000,000 in aggregate principal amount at maturity
of the Old Notes outstanding. The terms of the Exchange Notes are identical in
all material respects to the terms of the Old Notes, except that (i) the offer
and sale of the Exchange Notes have been registered under the Securities Act and
therefore the Exchange Notes are not subject to certain restrictions on transfer
applicable to the Old Notes, will not contain legends relating thereto and will
not be entitled to registration rights or other rights under the Registration
Rights Agreement, and (ii) the Exchange Notes will not provide for any
Liquidated Damages (as defined herein) thereon, which rights and provision will
terminate as to the Senior Discount Notes upon the consummation of the Exchange
Offer, subject to certain provisions of the Registration Rights Amendment (as
defined herein). The Exchange Notes will be issued under the same Indenture (as
defined herein) as the Old Notes and the Exchange Notes and the Old Notes will
constitute a single series of debt securities under the Indenture. In the event
that the Exchange Offer is consummated, any Old Notes which remain outstanding
after consummation of the Exchange Offer and the Exchange Notes issued in the
Exchange Offer will vote together as a single class for purposes of determining
whether holders of the requisite percentage in outstanding principal amount of
Senior Discount Notes have taken certain actions or exercise certain rights
under the Indenture. See "The Exchange Offer."
The Exchange Notes will be subject to redemption at any time on or after
August 15, 2003 at the option of the Issuer, in whole or in part, in cash at the
redemption prices set forth herein, plus accrued and unpaid interest to the
applicable redemption date. Notwithstanding the foregoing, on or prior to August
15, 2001, the Issuer may redeem up to 100% of the aggregate principal amount at
maturity of Exchange Notes ever issued under the Indenture in cash at a
redemption price of 114% of the Accreted Value (as defined herein) thereof to
the redemption date, with the net cash proceeds of one or more Public Equity
Offerings (as defined herein). In addition, at any time prior to August 15,
2003, the Issuer may, at its option upon the occurrence of a Change of Control
(as defined herein), redeem the Exchange Notes, in whole but not in part, in
cash at a redemption price equal to the present value at such time of the
optional redemption price of the Exchange Notes at August 15, 2003, computed
using a discount rate equal to the Treasury Rate (as defined herein) plus 75
basis points, to the date of redemption. Upon the occurrence of a Change of
Control, each Holder of Exchange Notes will have the right to require the Issuer
to repurchase all or any part of such Holder's Exchange Notes at an offer price
in cash equal to 101% of the Accreted Value thereof, in the case of any such
purchase prior to August 15, 2003, or 101% of the principal amount at maturity
thereof, in the case of any such purchase on or after August 15, 2003, in each
case plus accrued and unpaid interest to the date of repurchase. In addition, in
the event the Issuer completes one or more Public Common Stock Offerings (as
defined herein) for cash at any time prior to August 15, 2001, the Issuer will
be obligated to use the net cash proceeds received therefrom to make an offer to
purchase the maximum principal amount at maturity of Exchange Notes that may be
purchased with such net cash proceeds at a purchase price in cash equal to 114%
of the Accreted Value thereof to the date of repurchase. See "Description of
Exchange Notes."
The Exchange Notes will be senior unsecured obligations of the Issuer. The
Issuer has also provided a guarantee of the indebtedness under the Existing
Credit Facility (as defined herein) of Insilco Corporation ("Insilco"), the
Issuer's operating subsidiary, which is secured by a pledge of all of the common
stock of Insilco. The Exchange Notes will rank pari passu with all future senior
indebtedness of the Issuer and will rank senior in right of payment to all
future indebtedness of the Issuer that is subordinated to the Exchange Notes.
The Issuer is a holding company and, accordingly, the Exchange Notes will be
effectively subordinated to all liabilities of Insilco and its subsidiaries. As
of June 30, 1998, on a pro forma basis after giving effect to the Mergers (as
defined herein), the Merger Financing (as defined herein) and the Refinancing
(as defined herein), the Issuer and its subsidiaries would have had
approximately $385.8 million of Indebtedness (as defined herein) and the
Issuer's subsidiaries would have had approximately $449.5 million of liabilities
outstanding, including Indebtedness under the 12% Notes, the Existing Credit
Facility and the New Credit Facility (each as defined herein) and other
liabilities. Further, the Issuer has $35 million of aggregate liquidation
preference of PIK Preferred Stock (as defined) outstanding, which increases as
dividends are paid in kind on the PIK Preferred Stock through August 1, 2003,
after which date dividends will be payable in cash, and which will be
mandatorily redeemable in cash on August 1, 2010 at the aggregate liquidation
preference of the PIK Preferred Stock.
-----------------------
(Continued on next page)
See "Risk Factors" commencing on page 18 for a discussion of certain factors
that should be considered by holders of the Old Notes prior to tendering their
Old Notes in the Exchange Offer.
-----------------------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is ___________, 1998
(Cover page continued)
Holdings is making the Exchange Offer in reliance on the position of the
staff of the Division of Corporation Finance of the Securities and Exchange
Commission (the "Commission") as set forth in certain interpretive letters
addressed to third parties in other transactions. However, Holdings has not
sought its own interpretive letter and there can be no assurance that the staff
of the Division of Corporation Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it has in such interpretive
letters to third parties. Based on these interpretations by the staff of the
Division of Corporation Finance, and subject to the two immediately following
sentences, Holdings believes that the Exchange Notes issued pursuant to this
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by a holder thereof (other than a holder who is a
broker-dealer) without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holder's business and that such
holder is not participating, and has no arrangement or understanding with any
person to participate, in a distribution (within the meaning of the Securities
Act) of such Exchange Notes. However, any holder of Old Notes who is an
"affiliate" of Holdings or who intends to participate in the Exchange Offer for
the purpose of distributing Exchange Notes, or any broker-dealer who purchased
Old Notes from Holdings to resell pursuant to Rule 144A under the Securities Act
("Rule 144A") or any other available exemption under the Securities Act, (a)
will not be able to rely on the interpretations of the staff of the Division of
Corporation Finance of the Commission set forth in the above-mentioned
interpretive letters, (b) will not be permitted or entitled to tender such Old
Notes in the Exchange Offer and (c) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or other transfer of such Old Notes unless such sale is made pursuant to an
exemption from such requirements. In addition, as described below, if any
broker-dealer holds Old Notes acquired for its own account as a result of
market-making or other trading activities and exchanges such Old Notes for
Exchange Notes, then such broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of such
Exchange Notes.
Each holder of Old Notes who wishes to exchange Old Notes for Exchange
Notes in the Exchange Offer will be required to represent that (i) it is not an
"affiliate" of Holdings, (ii) any Exchange Notes to be received by it are being
acquired in the ordinary course of its business, and (iii) it has no arrangement
or understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it acquired the Old Notes for its own account as the result of
market-making activities or other trading activities and must agree that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. Based on the position taken by the staff of the Division of
Corporation Finance of the Commission in the interpretive letters referred to
above, Holdings believes that broker-dealers who acquired Old Notes for their
own accounts, as a result of market-making activities or other trading
activities ("Participating Broker-Dealers") may fulfill their prospectus
delivery requirements with respect to the Exchange Notes received upon exchange
of such Old Notes (other than Old Notes which represent an unsold allotment from
the original sale of the Old Notes) with a prospectus meeting the requirements
of the Securities Act, which may be the prospectus prepared for an exchange
offer so long as it contains a description of the plan of distribution with
respect to the resale of such Exchange Notes. Accordingly, this Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer during the period referred to below in connection
with resales of Exchange Notes received in exchange for Old Notes where such Old
Notes were acquired by such Participating Broker-Dealer for its own account as a
result of market-making or other trading activities. Subject to certain
provisions set forth in the Registration Rights Agreement, Holdings has agreed
that this Prospectus, as it may be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer in connection with resales of such
Exchange Notes for a period ending 90 days after the Expiration Date referred to
below (subject to extension under certain limited circumstances described below)
or, if earlier, when all such Exchange Notes have been disposed of by such
Participating Broker-Dealer. See "Plan of Distribution." Any Participating
Broker-Dealer who is an "affiliate" of Holdings may not rely on such
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. See "The Exchange Offer--Resales of the Exchange Notes." In that
regard, each Participating Broker-Dealer who surrenders Old Notes pursuant to
the Exchange Offer will agree, by execution of, or otherwise becoming bound by,
the Letter of Transmittal, that, upon receipt of notice from Holdings of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in the light of the circumstances under which they were made, not
misleading or of the occurrence of certain other events specified in the
Registration Rights Agreement, such Participating Broker-Dealer will suspend the
sale of Exchange Notes pursuant to this Prospectus until Holdings has amended or
supplemented this Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or Holdings has given notice that the sale of the Exchange Notes
may be resumed, as the case may be. If Holdings gives such notice to suspend the
sale of the Exchange Notes, it shall extend the 90-day period referred to above
during which Participating Broker-Dealers are entitled to use this Prospectus in
connection with the resale of Exchange Notes by the number of days during the
period from and including the date of the giving of such notice to and including
the date when Participating Broker-Dealers shall have received copies of the
amended or supplemented Prospectus necessary to permit resales of the Exchange
Notes or to and including the date on which Holdings has given notice that the
sale of Exchange Notes may be resumed, as the case may be.
The Exchange Notes will be a new issue of securities for which there
currently is no market. Although Donaldson, Lufkin & Jenrette Securities
Corporation, the initial purchaser of the Old Notes (the "Initial Purchaser")
has informed Holdings that it currently intends to make a market in the Exchange
Notes, it is not obligated to do so, and any such market making may be
discontinued at any time without notice. Accordingly, there can be no assurance
as to the development or liquidity of any market for the Exchange Notes.
Holdings currently does not intend to apply for listing of the Exchange Notes on
any securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the same rights and will be subject to
the same limitations applicable thereto under the Indenture (except for those
rights which terminate upon consummation of the Exchange Offer). Following
consummation of the Exchange Offer, the holders of Old Notes will continue to be
subject to the existing restrictions upon transfer thereof and, except in
certain circumstances, Holdings will have no further obligation to such holders
to provide for registration under the Securities Act of the Old Notes held by
them. To the extent that Old Notes are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered Old Notes could be adversely
affected. See "Prospectus Summary--Certain Consequences of a Failure to Exchange
Old Notes."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
Old Notes may be tendered for exchange on or prior to 5:00 p.m., New York
City time, on December 10, 1998 (such time on such date being hereinafter called
the "Expiration Date"), unless the Exchange Offer is extended by Holdings (in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended). Tenders of Old Notes may be withdrawn at
any time on or prior to the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange. However, the Exchange Offer is subject to certain events and
conditions and to the terms and provisions of the Registration Rights Agreement.
Old Notes may be tendered in whole or in part in a principal amount at maturity
of $1,000 and integral multiples thereof. Holdings has agreed to pay all
expenses of the Exchange Offer. See "The Exchange Offer--Fees and Expenses."
(Cover page continued)
Any waiver, extension or termination of the Exchange Offer will be publicly
announced by Holdings through a release to the Dow Jones News Service and as
otherwise required by applicable law or regulations.
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of November 11, 1998.
Holdings will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. No dealer-manager is being used in connection
with this Exchange Offer. See "Use of Proceeds" and "Plan of Distribution."
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TABLE OF CONTENTS
Page
-----
Prospectus Summary.............................................................1
Summary Historical and Unaudited Pro
Forma Financial and Operating Data.......................................14
Risk Factors..................................................................18
Use of Proceeds...............................................................26
Capitalization................................................................27
Selected Consolidated Financial Data..........................................28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...............................................................30
Business......................................................................44
Management....................................................................52
Executive Compensation........................................................54
Security Ownership of Certain Beneficial Owners and
Management....................................................................57
Certain Relationships and Related Party
Transactions.............................................................58
Description of Certain Indebtedness...........................................60
Description of Exchange Notes.................................................65
Description of Old Notes......................................................95
The Exchange Offer............................................................95
Certain United States Tax Consequences of the
Exchange Offer..........................................................101
Plan of Distribution.........................................................101
Legal Matters................................................................102
Experts......................................................................102
Index to Consolidated Financial Statements...................................F-1
Pro Forma Financial Information..............................................P-1
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Investors are urged to read this Prospectus in its
entirety. As used in this Prospectus, the term "Silkworm" means Silkworm
Acquisition Corporation, the term "Issuer" means Silkworm before the Merger (as
defined below) and Insilco Holding Co. after the Merger, the term "Holdings"
means Insilco Holding Co., the term "Insilco" means Insilco Corporation and the
term the "Company" means Insilco, its predecessors and subsidiaries prior to the
Merger and Holdings, its predecessors and subsidiaries after the Merger. Except
for historical financial information and unless otherwise indicated, all
information presented below relating to the Company gives effect to the
consummation of the Mergers (as defined below).
The Company
Overview
The Company is a diversified producer of automotive, telecommunications and
electronics components, and is a leading specialty publisher of student
yearbooks. The Company has three reporting segments: (i) the Automotive
Components Group, which manufactures transmission components and assemblies and
heat exchangers (such as radiators and air conditioning condensers) and heat
exchanger tubing; (ii) the Technologies Group, which manufactures high
performance data-grade connectors for the telecommunications and networking
markets, cable and wire assemblies primarily for the telecommunications market,
and precision metal stampings and power transformers primarily for the
electronics market; and (iii) Specialty Publishing, a specialty publisher
focusing primarily on the student yearbook market. The Company's portfolio of
businesses serves several market segments, which the Company believes tends to
dampen cyclicality and diversify business risk. The Company's broad base of more
than 17,000 customers includes automotive and non-automotive original equipment
manufacturers ("OEMs"), telecommunications, networking and electronics companies
and school yearbook departments nationwide.
The Company's primary focus is to tailor its products for customer-specific
applications in niche markets. This strategy includes customizing products for
particular accounts and applications and developing technology to enhance
product function. The Company believes that this niche market focus results in
more stable revenues, higher margins and longer term, often sole-supplier,
customer relationships. From fiscal 1994 to the twelve month period ended June
30, 1998, the Company's net sales from continuing operations increased from
$438.4 million to $539.3 million, representing a compound annual growth rate
("CAGR") of 6.1%, and Adjusted EBITDA (as defined) increased from $56.6 million
to $70.0 million, representing a CAGR of 6.3%. See "Recent Developments" for a
discussion of the Company's results for the three- and nine-month periods ended
September 30, 1998.
<TABLE>
<CAPTION>
Twelve Months ended June
30, 1998
--------
Adjusted
Segment Sales EBITDA(1) Principal Products/Markets Largest Customers
- ------- ----- --------- -------------------------- -----------------
(in millions)
<S> <C> <C> <C> <C>
Automotive Components $ 238.5 $ 32.9 --Transmission/suspension components --Ford
Group --Radiators/air conditioning condensors --Valeo
--Heat exchanger tubing --Caterpillar
--Behr
--Delphi
Technologies Group 200.0 28.8 --Cable harness assemblies --Nortel
--50/60 Hz transformers --Siemens
--Modular jacks & plugs --Littelfuse
--Precision high speed stamping --Ericsson
--Lucent
--IBM
Specialty Publishing 100.8 8.3 --School yearbooks --High-Schools
--Universities
Total $ 539.3 70.0
</TABLE>
(1) See footnote 6 to the "Summary Historical and Unaudited Pro Forma
Consolidated Financial Operating Data."
The Automotive Components Group consists of three operating units--Thermal
Components, Steel Parts and Romac--and a joint venture, Thermalex. Thermal
Components produces aluminum- and copper-based heat exchanger tubing for
automotive OEMs and Tier 1 suppliers, and also manufactures radiators, air
conditioning condensers and other heat exchangers for automotive and industrial
applications. Steel Parts is the leading supplier of automatic transmission
clutch plates to Ford and produces other stamped components for OEMs and Tier 1
suppliers. Romac produces stainless steel tubing for marine, architectural,
industrial and automotive applications. Thermalex, a joint venture owned equally
by the Company and Mitsubishi Aluminum Co., Ltd. ("Mitsubishi Aluminum"), is,
management believes, the nation's leading producer of precision extruded
multi-port aluminum heat exchanger tubing used in automotive air-conditioning
condensers. In 1997, Thermalex, which is accounted for as an unconsolidated
investment, contributed $2.6 million to the Company's consolidated pre-tax
income and paid a $1.5 million cash dividend to the Company. On a stand-alone
basis, Thermalex generated $10.3 million of EBITDA in 1997; however, only the
$1.5 million dividend is included in the Company's Adjusted EBITDA. Management
believes that the impact of the automotive cycle on the Automotive Components
Group's financial performance is mitigated by sales to the automotive
aftermarket and non-automotive OEMs, which represented 16% and 27%,
respectively, of the Automotive Components Group's 1997 net sales.
The Technologies Group generally focuses on niche products which are
designed for specific customer applications and seeks to supply all or a
substantial portion of its customers' requirements. The group has four operating
units: Escod Industries, a supplier of cable and wire assemblies to the
telecommunications market, including Northern Telecom and Siemens Telecom
Network; Stewart Connector, a producer of high performance data-grade connectors
for the computer networking and telecommunications markets; Stewart Stamping, a
producer of highly customized precision stamped metal parts, primarily for the
electronics industry; and Signal Transformer, a producer of 50-60 Hz power
transformers used in a variety of product applications.
Specialty Publishing consists of Taylor Publishing Company ("Taylor"), one
of the nation's leading publishers of student yearbooks. The Company believes
that Taylor was the first major yearbook publisher to make extensive use of
digital pre-press technology as opposed to the more widely used pre-press
process which involves manual cutting, pasting and rescaling. The Company
believes it uses digital pre-press technology more extensively than its
competitors, which offers yearbook departments greater flexibility in altering
page design and superior quality. The student yearbook business benefits from
very limited cyclicality, low customer turnover and pre-paid sales.
Recent Developments
Third Quarter Results. Sales for the third quarter ended Septmeber 30, 1998
increased 3% to $135.1 million from $131.4 million during the same period in
1997. Sales for the nine-month period ended September 30, 1998 increased 4% to
$422.4 million from $407.6 million during the comparable period in 1997. The
sales increase in both periods was attributable to strong results reported by
the Company's Automotive Components Group (11% sales growth in the third
quarter) which offset declines in the Company's Technologies Group (9% sales
decline in the third quarter). The Automotive Components Group's performance was
led by strong growth of heat exchanger sales. The Technologies Group's
performance was negatively impacted by the overall slowdown in the global
telecommunications and electronics markets, which has continued into the fourth
quarter.
The Company had Adjusted EBITDA of $14.4 million for the third quarter
ended September 30, 1998, compared to $15.7 million recorded in the comparable
period in 1997. The Company's Adjusted EBITDA for the third quarter excludes
$24.2 million of charges related to the Mergers, (as defined herein) and $1.4
million of other non-recurring charges related primarily to management severance
and legal expenses. For the nine months ended September 30, 1998, Adjusted
EBITDA was $53.3 million as compared to $55.8 million for the comparable period
in 1997. Adjusted EBITDA for the nine months excludes $25.5 million of
merger-related charges and $3.0 million of other non-recurring charges related
primarily to management severance and legal expenses.
The Company's 1998 third quarter profitability was negatively impacted by
(i) sales declines, a less favorable sales mix and increased pricing competition
in the Company's Technologies Group and (ii) the results of its McKenica
division, a tubing mill capital equipment manufacturer. The Technologies Group,
which posted $1.8 million and $2.2 million declines in EBITDA in the three- and
nine-month periods ended September 30, 1998, respectively, was affected by the
overall slowdown in the global telecommunications and electronic markets.
McKenica, which posted $0.6 million and $2.2 million declines in EBITDA in the
three- and nine-month periods ended September 30, 1998, respectively, was
affected by lower orders from Asian and domestic customers. Excluding McKenica's
results, the Company's Adjusted EBITDA in the third quarter would have been
$14.6 million in 1998 as compared to $15.2 million for the comparable period in
1997, and Adjusted EBITDA for the nine-month period ended September 30,1998
would have been $53.5 million as compared to $53.7 million for the comparable
period in 1997.
Sales of the Company's Taylor Publishing business unit were up to 7%
in the third quarter to $27.4 million, due to early delivery of fall year
books, compared to 1997 third quarter sales of $25.6 million. Taylor's
EBITDA of $1.7 million was flat compared to the third quarter of last year.
For a discussion of the Company's third quarter results, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Recent Developments".
Potential Charge Associated With Cost Reduction Program. The Company is
reviewing a number of programs designed to improve operating efficiencies and
reduce expenses. While the scope of these programs has not been finalized, the
Company currently expects to record non-recurring charges of approximately $5
million in the aggregate during the fourth quarter of 1998 and the first quarter
of 1999.
The Mergers
On August 17, 1998, the Company closed a series of transactions involving
the Company. The transactions included, among other things, the formation by
Holdings of a wholly owned subsidiary ("ReorgSub"), followed by the merger of
ReorgSub with and into Insilco (the "Reorganization Merger"), pursuant to which
each stockholder of Insilco had his or her shares of Insilco (other than shares
as to which appraisal rights have been validly perfected) converted into the
same number of shares of Holdings and the right to receive $0.01 per share in
cash, and Holdings became the parent of Insilco. Promptly following the
Reorganization Merger, a second merger took place pursuant to which Silkworm
merged with and into Holdings (the "Merger" and, together with the
Reorganization Merger, the "Mergers") and each share of the common stock of
Holdings was converted into the right to receive $43.47 in cash and retain
0.03378 of a share of Holdings common stock ("Holdings Common Stock"). Thus, as
a result of the Mergers, each stockholder of Insilco, in respect to each of his
or her shares, received $43.48 in cash and retained 0.03378 of a Holdings share
(the "Merger Consideration"). Concurrently with the consummation of the Mergers,
DLJMB Funds purchased 1,400,000 shares of pay-in-kind preferred stock, par value
$0.001 of Holdings (the "PIK Preferred Stock"), and warrants (the "DLJMB
Warrants") to purchase 65,603 shares of Holdings Common Stock, which in the
Merger was converted into the right to purchase shares of Common Stock of
Holdings. Following the Mergers, (i) Insilco's existing stockholders retained,
in the aggregate, approximately 10.1% (9.4% on a fully diluted basis) of the
outstanding shares of Holdings Common Stock; (ii) the DLJMB Funds (as defined
below) held approximately 69.0% (68.3% on a fully diluted basis), of the
outstanding shares of Holdings Common Stock, (iii) 399 Venture Partners, Inc., a
wholly owned indirect subsidiary of Citibank, N.A., or one of its affiliates
("CVC"), purchased shares of Silkworm which in the Merger were converted into up
to 19.3% (17.8% on a fully diluted basis) of the common stock of Holdings and
(iv) management of the Company purchased approximately 1.7% (1.5% on a fully
diluted basis) of Holdings Common Stock concurrently with the consummation of
the Merger.
Immediately prior to the effectiveness of the Reorganization Merger, each
outstanding option to acquire shares of the common stock of Insilco granted to
employees and directors, whether or not vested (the "Options"), were canceled
and, in lieu thereof, each holder of an Option received a cash payment in an
amount equal to (x) the excess, if any, of $45.00 over the exercise price of the
Option multiplied by (y) the number of shares subject to the Option, less
applicable withholding taxes (the "Option Cash Payments"). Certain holders of
such Options elected to utilize amounts otherwise receivable by them to purchase
equity or equity units of the Company.
The Merger Financing
The total amount of cash required to consummate the foregoing transactions
(the "Merger Financing") was approximately $204.4 million. The Merger Financing
was funded with (i) gross proceeds of approximately $70.2 million from the
issuance by Silkworm of units (which were converted into units of Holdings
("Holdings Units") in the Merger) each unit consisting or $1,000 principal
amount at maturity of 14% Senior Discount Notes due 2008 (the "Senior Discount
Notes") and one warrant to purchase .325 of a share of Holdings Common Stock at
an exercise price of $0.01 per share, (ii) the issuance by Silkworm to certain
funds affiliated with DLJMB (the "DLJMB Funds"), to participants in the
Management Rollover and, to CVC, for an aggregate consideration of approximately
$56.1 million of 1,245,138 shares of Silkworm common stock, (iii) the issuance
to the DLJMB Funds for an aggregate consideration of $35.0 million of 1,400,000
shares of the PIK Preferred Stock by Holdings and the DLJMB Warrants to purchase
65,603 shares of Holdings Common Stock at an exercise price of $0.01 per share
by Silkworm, and (iv) approximately $43.1 million of new borrowings under the
Company's existing $200.0 million credit facility with various lenders and
issuing banks (the "Existing Credit Facility").
Offer to Purchase
As a result of the Merger, Insilco was required to make an Offer to
Purchase (as defined in the indenture (the "10 1/4% Note Indenture") relating to
the 10 1/4% Notes (the "10 1/4 Notes") for all of the outstanding 10 1/4% Notes
at 101% of their aggregate principal amount, plus accrued interest. The Offer to
Purchase expires on November 16, 1998 and Insilco intends to repurchase all
10 1/4% Notes validly tendered and not withdrawn as promptly as practicable
following acceptance of the 10 1/4% Notes or to otherwise purchase the 10 1/4%
Notes. There is an aggregate of $150 million principal amount of 10 1/4% Notes
outstanding.
New Credit Facility
DLJ Capital Funding Inc. ("DLJ Capital Funding") has committed to lend up
to $300 million to Insilco (the "New Credit Facility"). The New Credit
Facility will be used to refinance the Existing Credit Facility and to fund a
portion of the repurchase of 10 1/4% Notes. The New Credit Facility will include
a $100 million term loan facility (the "Term Loan Facility") and a $200 million
revolving credit facility (subject to adjustment as provided below), which will
provide for revolving loans and up to $50 million of letters of credit (the
"Revolving Credit Facility"). The Term Loan Facility will have a maturity of
seven years. The Revolving Credit Facility will terminate on July 8, 2003. DLJ
Capital Funding's commitment, however, is subject to significant conditions. See
"Risk Factors--Potential Lack of Financing," "Description of Certain
Indebtedness--New Credit Facility" and "--Existing Credit Facility."
Insilco Unit Offering
On November 2, 1998, Insilco commenced an offering of 120,000 units (the
"Insilco Units") consisting of $120,000,000 in aggregate principal amount of its
12% Senior Subordinated Notes due 2007 (the "12% Notes") and Warrants to
purchase 62,400 shares of common stock of Holding (the "Insilco Unit Warrants")
to partly fund the repurchase of $150,000,000 in aggregate principal amount of
its outstanding 10 1/4% Notes. This repurchase is required under the terms of
the 10 1/4% Note Indenture following the consummation of the Mergers. The
offering of the 12% Notes, together with the repurchase of the 10 1/4% Notes
pursuant to the Offer to Purchase, and the borrowings under the New Credit
Facility are referred to as the "Refinancing."
Potential Acquisitions
The company is in negotiations with respect to two potential acquisitions,
neither of which, if consummated, individually would be material to the
Company's financial position.
The Exchange Offer
The Exchange Offer..............Up to $138 million aggregate principal amount at
maturity of Exchange Notes are being offered in
exchange for a like aggregate principal amount
at maturity of Old Notes. Holdings is making the
Exchange Offer in order to satisfy its
obligations under the Registration Rights
Agreement relating to the Old Notes. For a
description of the procedures for tendering Old
Notes, see "The Exchange Offer--Procedures for
Tendering Old Notes."
Expiration Date.................5:00 p.m., New York City time, on December 10,
1998 (such time on such date being
hereinafter called the "Expiration Date")
unless the Exchange Offer is extended by
Holdings (in which case the term
"Expiration Date" shall mean the latest
date and time to which the Exchange Offer
is extended). Any waiver, extension or
termination of the Exchange Offer will be
publicly announced by Holdings through a
release to the Dow Jones News Service and
as otherwise required by applicable law or
regulations. See "The Exchange Offer--
Terms of the Exchange Offer; Period for
Tendering Old Notes."
Certain Conditions to
the Exchange Offer............. The Exchange Offer is subject to certain
conditions. Holdings reserves the right, subject
to applicable law, at any time and from time to
time, (i) to delay the acceptance of the Old
Notes for exchange, (ii) to terminate the
Exchange Offer if certain specified conditions
have not been satisfied, (iii) to extend the
Expiration Date of the Exchange Offer and retain
all Old Notes tendered pursuant to the Exchange
Offer, subject, however, to the right of holders
of Old Notes to withdraw their tendered Old
Notes, or (iv) to amend the terms of the
Exchange Offer in any respect. See "The Exchange
Offer--Terms of the Exchange Offer; Period for
Tendering Old Notes" and "--Certain Conditions
to the Exchange Offer."
Withdrawal Rights...............Tenders of Old Notes may be withdrawn at any
time on or prior to 5:00 p.m., New York City
time on the Expiration Date by delivering a
written notice of such withdrawal to the
Exchange Agent in conformity with certain
procedures set forth below under "The Exchange
Offer--Withdrawal Rights."
Procedures for Tendering
Old Notes.......................Tendering holders of Old Notes must complete and
sign aLetter of Transmittal in accordance with
the instructions contained therein and forward
the same by mail, facsimile or hand delivery,
together with any other required documents, to
the Exchange Agent (as defined below) at the
address set forth herein by 5:00 p.m. New York
City time on the Expiration Date, either with
the Old Notes to be tendered or in compliance
with the specified procedures for guaranteed
delivery of Old Notes. Certain brokers, dealers,
commercial banks, trust companies and other
nominees may also effect tenders by book-entry
transfer. Holders of Old Notes registered in the
name of a broker, dealer, commercial bank, trust
company or other nominee are urged to contact
such person promptly if they wish to tender Old
Notes pursuant to the Exchange Offer. See "The
Exchange Offer--Procedures for Tendering Old
Notes." Letters of Transmittal and certificates
representing Old Notes should not be sent to
Holdings. Such documents should only be sent to
the Exchange Agent. Questions regarding how to
tender and requests for information should be
directed to the Exchange Agent. See "The
Exchange Offer--Exchange Agent."
Guaranteed Delivery
Procedures......................Holders of Old Notes who wish to tender their
Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes, a Letter of Transmittal or any
other document required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date, must tender their Old Notes
according to the guaranteed delivery procedures
set forth in "The Exchange Offer--Guaranteed
Delivery Procedures."
Resales of Exchange
Notes...........................Holdings is making the Exchange Offer in
reliance on the position of the staff of the
Division of Corporation Finance of the
Commission as set forth in certain interpretive
letters addressed to third parties in other
transactions. However, Holdings has not sought
its own interpretive letter and there can be no
assurance that the staff of the Division of
Corporation Finance of the Commission would make
a similar determination with respect to the
Exchange Offer as it has in such interpretive
letters to third parties. Based on these
interpretations by the staff of the Division of
Corporation Finance, and subject to the two
immediately following sentences, Holdings
believes that Exchange Notes issued pursuant to
this Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise
transferred by a holder thereof (other than a
holder who is a broker-dealer) without further
compliance with the registration and prospectus
delivery requirements of the Securities Act,
provided that such Exchange Notes are acquired
in the ordinary course of such holder's business
and that such holder is not participating, and
has no arrangement or understanding with any
person to participate, in a distribution (within
the meaning of the Securities Act) of such
Exchange Notes. However, any holder of Old Notes
who is an "affiliate" of Holdings or who intends
to participate in the Exchange Offer for the
purpose of distributing the Exchange Notes, or
any broker- dealer who purchased the Old Notes
from Holdings to resell pursuant to Rule 144A or
any other available exemption under the
Securities Act, (a) will not be able to rely on
the interpretations of the staff of the Division
of Corporation Finance of the Commission set
forth in the above-mentioned interpretive
letters, (b) will not be permitted or entitled
to tender such Old Notes in the Exchange Offer
and (c) must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any sale or
other transfer of such Old Notes unless such
sale is made pursuant to an exemption from such
requirements. In addition, as described below,
if any broker-dealer holds Old Notes acquired
for its own account as a result of market-making
or other trading activities and exchanges such
Old Notes for Exchange Notes, then such
broker-dealer must deliver a prospectus meeting
the requirements of the Securities Act in
connection with any resales of such Exchange
Notes.
Each holder of Old Notes who wishes to exchange
Old Notes for Exchange Notes in the Exchange
Offer will be required to represent that (i) it
is not an "affiliate" of Holdings within the
meaning of Rule 405 under the Securities Act,
(ii) any Exchange Notes to be received by it are
being acquired in the ordinary course of its
business, and (iii) it has no arrangement or
understanding with any person to participate in
a distribution (within the meaning of the
Securities Act) of such Exchange Notes. Each
broker-dealer that receives Exchange Notes for
its own account pursuant to the Exchange Offer
must acknowledge that it acquired the Old Notes
for its own account as the result of
market-making activities or other trading
activities and must agree that it will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale of
such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by
delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. Based on the position taken by
the staff of the Division of Corporation Finance
of the Commission in the interpretive letters
referred to above, Holdings believes that
broker-dealers who acquired Old Notes for their
own accounts as a result of market-making
activities or other trading activities
("Participating Broker-Dealers") may fulfill
their prospectus delivery requirements with
respect to the Exchange Notes received upon
exchange of such Old Notes with a prospectus
meeting the requirements of the Securities Act,
which may be the prospectus prepared for an
exchange offer so long as it contains a
description of the plan of distribution with
respect to the resale of such Exchange Notes.
Accordingly, this Prospectus, as it may be
amended or supplemented from time to time, may
be used by a Participating Broker-Dealer in
connection with resales of Exchange Notes
received in exchange for Old Notes where such
Old Notes were acquired by such Participating
Broker-Dealer for its own account as a result of
market-making or other trading activities.
Subject to certain provisions set forth in the
Registration Rights Agreement and to the
limitations described below under "The Exchange
Offer--Resale of Exchange Notes," Holdings has
agreed that this Prospectus, as it may be
amended or supplemented from time to time, may
be used by a Participating Broker-Dealer in
connection with resales of such Exchange Notes
for a period ending 90 days after the Expiration
Date (subject to extension under certain limited
circumstances) or, if earlier, when all such
Exchange Notes have been disposed of by such
Participating Broker-Dealer. See "Plan of
Distribution." Any Participating Broker-Dealer
who is an "affiliate" of Holdings may not rely
on such interpretive letters and must comply
with the registration and prospectus delivery
requirements of the Securities Act in connection
with any resale transaction. See "The Exchange
Offer--Resales of Exchange Notes."
Acceptance of Old Notes
and Offer, Delivery of
Exchange Notes..................Subject to the terms and conditions of the
Exchange Offer including the reservation of
certain rights by Holdings, Holdings will accept
for exchange any and all Old Notes which are
properly tendered in the Exchange Offer, and not
withdrawn, prior to 5:00 p.m. New York City
time, on the Expiration Date. Subject to such
terms and conditions, the Exchange Notes issued
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer--Acceptance of Old Notes for
Exchange; Delivery of Exchange Notes."
Exchange Agent..................The exchange agent with respect to the Exchange
Offer is Star Bank, N.A. (the "Exchange Agent").
The addresses, and telephone and facsimile
numbers of the Exchange Agent are set forth in
"The Exchange Offer--Exchange Agent" and in the
Letter of Transmittal.
Use of Proceeds.................Holdings will not receive any cash proceeds from
the issuance of the Exchange Notes offered
hereby. See "Use of Proceeds."
Certain United States
Federal Income
Tax Considerations..............Holders of Old Notes should review the
information set forth under "Certain United
States Tax Consequences of the Exchange Offer"
prior to tendering Old Notes in the Exchange
Offer.
The Exchange Notes
Securities Offered..............Up to $138 million aggregate principal amount at
maturity of Holdings' 14% Senior Discount Notes
due 2008. The Exchange Notes will be issued and
the Old Notes were issued under an Indenture
dated as of August 17, 1998 (the "Indenture")
between the Issuer and Star Bank, N.A. (the
"Trustee"). The Exchange Notes and any Old Notes
which remain outstanding after consummation of
the Exchange Offer will constitute a single
series of debt securities under the Indenture
and, accordingly, will vote together as a single
class for purposes of determining whether
holders of the requisite percentage in
outstanding principal amount thereof have taken
certain actions or exercised certain rights
under the Indenture. See "Description of
Exchange Notes--General." The terms of the
Exchange Notes are identical in all material
respects to the terms of the Old Notes, except
that (i) the offer and sale of the Exchange
Notes have been registered under the Securities
Act and therefore the Exchange Notes are not
subject to certain restrictions on transfer
applicable to the Old Notes, will not contain
legends relating thereto and will not be
entitled to registration rights or other rights
under the Registration Rights Agreement, and
(ii) the Exchange Notes will not provide for any
Liquidated Damages (as defined below) thereon,
which rights and provision will terminate as to
the Senior Discount Notes upon the consummation
of the Exchange Offer, subject to certain
provisions of the Registration Rights
Agreements. See "The Exchange Offer--Purpose of
the Exchange Offer" and "Description of Exchange
Notes."
Principal Amount at Maturity....$138,000,000.
Maturity Date...................August 15, 2008.
Yield and Interest..............14% (computed on a semi-annual bond equivalent
basis) calculated from August 17, 1998. The
Exchange Notes will accrete at a rate of 14%,
compounded semi-annually, to an aggregate
principal amount of $138.0 million on August 15,
2003. Cash interest will not accrue on the
Exchange Notes prior to August 15, 2003.
Commencing August 15, 2003, cash interest on the
Exchange Notes will accrue at a rate of 14% per
annum, and will be payable semi-annually in
arrears on each February 15 and August 15,
commencing February 15, 2004.
Optional Redemption.............The Exchange Notes will be subject to redemption
at any time on or after August 15, 2003 at the
option of the Issuer, in whole or in part, in
cash at the redemption prices set forth herein,
plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the applicable
redemption date. Notwithstanding the foregoing,
on or prior to August 15, 2001, the Issuer may
redeem up to 100% of the aggregate principal
amount at maturity of Exchange Notes ever issued
under the Indenture in cash at a redemption
price of 114% of the Accreted Value (as defined
herein) thereof, plus Liquidated Damages, if
any, thereon to the redemption date, with the
net cash proceeds of one or more Public Equity
Offerings. In addition, at any time prior to
August 15, 2003, the Issuer may, at its option
upon the occurrence of a Change of Control,
redeem the Exchange Notes, in whole but not in
part, in cash at a redemption price equal to (i)
the present value at such time of the optional
redemption price of the Exchange Notes at August
15, 2003, computed using a discount rate equal
to the Treasury Rate plus 75 basis points, plus
(ii) Liquidated Damages, if any, to the date of
redemption. See "Description of Exchange
Notes--Optional Redemption."
Mandatory Redemption............Upon the occurrence of a Change of Control, each
Holder of Exchange Notes will have the right to
require the Issuer to repurchase all or any part
of such Holder's Exchange Notes at an offer
price in cash equal to 101% of the Accreted
Value thereof, in the case of any such purchase
prior to August 15, 2003, or 101% of the
principal amount at maturity thereof, in the
case of any such purchase on or after August 15,
2003, in each case plus accrued and unpaid
interest and Liquidated Damages, if any, thereon
to the date of repurchase. No assurance can be
given that the Issuer will have sufficient
resources to satisfy its repurchase obligation
with respect to the Exchange Notes following a
Change of Control. In addition, in the event the
Issuer completes one or more Public Common Stock
Offerings (as defined herein) for cash at any
time prior to August 15, 2001, the Issuer will
be obligated to use the net cash proceeds
received therefrom to make an offer to purchase
the maximum principal amount at maturity of
Exchange Notes that may be purchased with such
net cash proceeds at a purchase price in cash
equal to 114% of the Accreted Value thereof,
plus accrued and unpaid Liquidated Damages, if
any, thereon to the date of repurchase. See
"Risk Factors--Possible Inability to Repurchase
Exchange Notes upon Change of Control or Public
Common Stock Offering" and "Description of
Exchange Notes."
Ranking.........................The Exchange Notes will be senior unsecured
obligations of the Issuer. The Exchange Notes
will rank pari passu in right of payment with
all future unsecured senior indebtedness of the
Issuer, and will rank senior in right of payment
to all future indebtedness of the Issuer that is
subordinated to the Exchange Notes. The Issuer
is a holding company that conducts all its
business through its subsidiaries. The Issuer
owns all the outstanding common stock of Insilco
and has no other assets other than such common
stock. Accordingly, the Exchange Notes will be
effectively subordinated to all liabilities of
Insilco and its subsidiaries. On a pro forma
basis, as of June 30, 1998, after giving effect
to the Mergers, the Merger Financing and the
Refinancing, the Company would have had
outstanding approximately $385.8 million of
Indebtedness and the Issuer's subsidiaries would
have had $449.5 million of total liabilities
outstanding, including Indebtedness under the
12% Notes, the Existing Credit Facility and the
New Credit Facility and including trade
payables.
Certain Covenants...............The Indenture (as defined herein) contains
certain covenants that, among other things,
limit the ability of the Issuer and its
Restricted Subsidiaries (as defined herein) to:
incur indebtedness and issue preferred stock,
repurchase Capital Stock (as defined herein) and
discharge Subordinated Indebtedness, engage in
transactions with affiliates, engage in sale and
leaseback transactions, incur or suffer to exist
certain liens, pay dividends or other
distributions, make investments, sell assets and
engage in certain mergers and consolidations.
See "Description of Exchange Notes--Certain
Covenants."
Absence of Market for
the New Notes...................The Exchange Notes will be a new issue of
securities for which there currently is no
market. Although Donaldson, Lufkin & Jenrette
Securities Corporation has informed Holdings
that it currently intends to make a market in
the Exchange Notes, it is not obligated to do
so, and any such market making may be
discontinued at any time without notice.
Accordingly, there can be no assurance as to the
development or liquidity of any market for the
Exchange Notes. Holdings currently does not
intend to apply for listing of the Exchange
Notes on any securities exchange or for
quotation through the National Association of
Securities Dealers Automated Quotation System.
Use of Proceeds.................Holdings will not receive any cash proceeds from
issuance of the Exchange Notes offered hereby.
The net proceeds received from the offering of
the Old Notes were used to pay the cash
component of the Merger Consideration, the
Option Cash Payments and fees and expenses
incurred in connection with the Mergers. See
"Use of Proceeds."
Certain Consequences of a Failure to Exchange Old Notes
The sale of the Old Notes was not registered under the Securities Act or
any state securities laws and therefore the Old Notes may not be offered, sold
or otherwise transferred except in compliance with the registration requirements
of the Securities Act and any other applicable securities laws, or pursuant to
an exemption therefrom or in a transaction not subject thereto, and in each case
in compliance with certain other conditions and restrictions, including
Holdings' and the Trustee's right in certain cases to require the delivery of
opinions of counsel, certifications and other information prior to any such
transfer. Old Notes which remain outstanding after consummation of the Exchange
Offer will continue to bear a legend reflecting such restrictions on transfer.
In addition, upon consummation of the Exchange Offer, holders of Old Notes which
remain outstanding will not be entitled to any rights to have the resale of such
Old Notes registered under the Securities Act or to any similar rights under the
Registration Rights Agreement, unless (i) such holder, based upon an opinion of
counsel was prohibited by law or Securities Exchange Commission policy from
participating in the Exchange Offer or (ii) such holder is a Participating
Broker-Dealer and holds Old Notes acquired directly from the Issuer. Subject to
the provisions of the Registration Rights Agreement, Holdings currently does not
intend to register under the Securities Act the resale of any Old Notes which
remain outstanding after consummation of the Exchange Offer.
To the extent that Old Notes are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered Old Notes could be adversely
affected. In addition, although the Old Notes are eligible for trading in the
Private Offerings, Resale and Trading through Automatic Linkages ("PORTAL")
market, to the extent that Old Notes are tendered and accepted in connection
with the Exchange Offer, any trading market for Old Notes which remain
outstanding after the Exchange Offer could be adversely affected.
The Exchange Notes and any Old Notes which remain outstanding after
consummation of the Exchange Offer will constitute a single series of debt
securities under the Indenture and, accordingly, will vote together as a single
class for purposes of determining whether holders of the requisite percentage in
outstanding principal amount thereof have taken certain actions or exercised
certain rights under the Indenture. See "Description of Exchange
Notes--General."
Pursuant to a Registration Rights Agreement between the Issuer and the
Initial Purchaser (the "Registration Rights Agreement"), the Issuer agreed (i)
to file a registration statement (the "Exchange Offer Registration Statement")
on or prior to 90 days after the closing of the Offering (the "Closing") with
respect to the Exchange Offer and (ii) to use its reasonable best efforts to
cause the Exchange Offer Registration Statement to be declared effective by the
Securities and Exchange Commission (the "Commission") on or prior to 90 days
after the Closing. In certain circumstances, the Issuer is required to provide a
shelf registration statement (the "Shelf Registration Statement") to cover
resales of the Senior Discount Notes by the holders thereof. The Old Notes
provide that, in the event the Issuer fails to satisfy its registration
obligations under the Registration Rights Agreement, the Issuer will be required
to pay Liquidated Damages to the holders of the Old Notes under certain
circumstances. Upon consummation of the Exchange Offer or the effectiveness of
such Shelf Registration Statement, the provision for Liquidated Damages on the
Old Notes shall cease.
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
FINANCIAL AND OPERATING DATA
The summary historical consolidated financial data presented below for
Insilco as of and for each of the years in the four year period ended December
31, 1997 are derived from Insilco's related audited consolidated financial
statements, which have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The information contained in this table should be
read in conjunction with "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Unaudited Pro Forma Consolidated Financial Data" and the consolidated financial
statements and the notes thereto included elsewhere in this Offering Memorandum
(the "Consolidated Financial Statements"). The summary historical consolidated
financial data as of and for the six months ended June 30, 1997 and 1998 are
unaudited; however, in management's opinion, they include all adjustments
(consisting of only normal recurring accruals) necessary for a fair presentation
of results for such interim periods. Interim results are not necessarily
indicative of results for the full year.
The unaudited pro forma condensed consolidated financial data of the
Company and its subsidiaries for the twelve months ended June 30, 1998 and the
year ended December 31, 1997 are based upon historical information that has been
adjusted to give effect to the transactions described in footnote 1. The
Reorganization Merger will be accounted for as a reorganization of entities
under common control, and the Merger will be accounted for as a
recapitalization. As a result, the Mergers will have no impact on the historical
basis of the assets or liabilities of the Company.
The unaudited pro forma condensed consolidated balance sheet data as of
June 30, 1998 have been prepared as if the Mergers, the Merger Financing and the
Refinancing occurred on that date. The unaudited pro forma condensed
consolidated income statements for the year ended December 31, 1997 and the six
months and twelve months ended June 30, 1998 have been prepared as if the
Mergers, the Merger Financing, the Refinancing and the 1997 Transactions (as
defined below) all occurred at the beginning of the relevant period. The
expenses directly related to the aforementioned transactions (other than
interest expense) are excluded from the pro forma statement of operations data.
The unaudited pro forma financial data are based on certain assumptions and
estimates, and therefore do not purport to be indicative of the results that
would have been obtained had the transactions been completed as of such dates or
indicative of future results of operations and financial position. See
"Unaudited Pro Forma Condensed Consolidated Financial Data."
The following table sets forth summary historical and unaudited pro forma
condensed consolidated financial and operating data derived from the Company's
Consolidated Financial Statements.
For a discussion of the third quarter results of the Company and Insilco,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments."
<TABLE>
<CAPTION>
Pro Forma
Six Months Twelve
Years Ended December 31, Ended June 30, Months
---------------------------------------------------------- ----------------------- Ended
Pro Forma June 30,
1994 1995 1996 1997 1997(1) 1997 1998 1998(1)
------ ------- ------- ------- ------- ------- ------- --------
(dollars in millions except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations Data:
Net sales....................... $438.4 $449.5 $492.4 $528.2 $528.2 $276.2 $287.3 $539.3
Operating income(2)............. 9.5 38.9 48.4 51.1 51.1 28.8 24.0 47.6
Other income (expense):
Interest expense........... (29.1) (19.5) (18.3) (20.5) (47.1) (7.7) (13.8) (45.9)
Interest income............ 1.8 1.4 0.7 2.8 0.8 2.0 0.1 0.6
Other income, net(3)....... 3.2 13.9 7.7 3.4 3.4 1.6 3.4 5.3
------ ---- ----- ----- ---- ----- ---- ----
Income (loss) from
continuing operations
before income taxes and
extraordinary item ............ (14.6) 34.7 38.5 36.8 8.2 24.7 13.7 7.6
Income tax expense.............. (5.7) (16.7) (13.3) (13.4) (3.4) (9.1) (6.5) (3.1)
------ ---- ----- ----- ---- ----- ---- ----
Income (loss) from
continuing operations
before extraordinary item...... (20.3) 18.0 25.2 23.4 4.8 15.6 7.2 4.5
Income (loss) from
discontinued operations,
net of tax(4).................. (9.7) (15.4) 13.8 58.9 -- 58.9 -- --
------ ---- ----- ----- ---- ----- ---- ----
Income (loss) before
extraordinary items............ (30.0) 2.6 39.0 82.3 4.8 74.5 7.2 4.5
Extraordinary item, net of tax.. (2.1) -- -- (0.7) -- -- -- --
------ ---- ----- ----- ---- ----- ---- ----
Net income (loss)............... (32.1) 2.6 39.0 81.6 4.8 74.5 7.2 4.5
------ ---- ----- ----- ---- ----- ---- ----
Preferred stock dividend........ -- -- -- -- (5.7) -- -- (5.7)
------ ---- ----- ----- ---- ----- ---- ----
Net income (loss) available
to common....................... $(32.1) $2.6 $39.0 $81.6 $(0.9) $74.5 $7.2 $(1.2)
====== ==== ===== ===== ==== ===== ==== ====
Other Data:
EBITDA(5)....................... $56.6 $68.4 $63.8 $69.5 $69.5 $38.4 $34.6 $67.0
Adjusted EBITDA(6).............. 56.6 64.6 68.7 71.3 71.3 40.0 38.7 70.0
Cash interest expense........... 28.1 17.9 16.7 19.3 34.3 7.2 13.1 33.4
Depreciation and
amortization................... 12.3 13.3 15.4 18.4 18.4 9.6 10.6 19.4
Amortization of
Reorganization Goodwill........ 34.8 16.2 -- -- -- -- -- --
Capital expenditures............ 17.5 20.2 20.0 23.6 23.6 10.3 10.9 24.2
Per Share Data:
Basic income (loss) per share
from continuing
operations..................... (2.09) 1.83 2.65 3.25 (0.59) 1.63 1.74 (0.74)
Diluted income (loss) per
share from continuing
operations..................... (2.09) 1.77 2.55 3.19 (0.57) 1.58 1.69 (0.71)
Book value per share............ (1.37) (1.64) 3.52 (25.08) 11.34 (21.90) (167.19)
Balance Sheet Data (at
period end):
Cash and cash equivalents....... $8.7 $9.9 $3.5 $10.7 $111.2 $7.0 $7.0
Working capital................. 33.9 44.9 51.4 39.5 145.0 64.2 69.7
Total assets.................... 368.7 340.1 348.4 302.7 423.2 314.1 323.0
Operating company debt.......... 198.1 186.5 161.0 257.7 169.8 264.8 315.6
Total debt...................... 198.1 186.5 161.0 257.7 169.8 264.8 385.8
Stockholders' equity (deficit).. (13.5) (15.8) 33.4 (102.3) 108.5 (90.8) (231.5)
Credit Statistics:
Adjusted EBITDA/Cash
interest expense............... 2.1x
Adjusted EBITDA/Cash and
accreted interest expense...... 1.5x
Operating company net
debt/Adjusted
EBITDA(7)...................... 4.4x
Total net debt/Adjusted
EBITDA(7)...................... 5.4x
</TABLE>
(1) Pro forma results reflect (i) the following transactions (the "1997
Transactions"): the entry into the Existing Credit Facility on July 3,
1997, the issuance of the 10 1/4% Notes on August 12, 1997 and the
repurchase by the Company of 5,714,284 shares of its common stock in the
third quarter of 1997 for an aggregate of $220 million (the "Share
Repurchase"); and (ii) the Mergers and the Merger Financing and (iii) the
Refinancing and the application of proceeds thereof, in each case, as if
they occurred at the beginning of the relevant period.
(2) Operating income in 1994 and 1995 includes the deduction for the
amortization of the Company's reorganization value over the aggregate fair
value of its tangible and identified intangible assets at March 31, 1993
("Reorganization Goodwill") of $34.8 million and $16.2 million,
respectively, due to the adoption of "fresh start" accounting principles.
See Note 1 to the Consolidated Financial Statements. Operating income in
1995 includes a gain of $4.3 million related to a change in the Company's
pension plan (see Note 12 to the Consolidated Financial Statements).
(3) Other income, net in 1995 includes favorable adjustments of $3.6 million
related to the Company's environmental liabilities, $1.5 million related to
the resolution of several legal disputes and a $4.0 million gain on the
sale of idle corporate assets. Other income, net in 1996 includes a $2.2
million adjustment related to the satisfaction of certain of the Company's
environmental liabilities following completion of a site clean-up for an
amount less than previously estimated.
(4) In March 1997, the Company completed the sale of its Office Products
Business (as defined below) with the divestiture of its traditional office
products business (the "Rolodex Business") for $112.6 million, net of
transaction costs, resulting in a gain of $57.8 million, net of taxes of
$37.2 million. The divestiture of the Rolodex Business was preceded in 1996
by the divestiture of the Rolodex electronics product line ("Rolodex
Electronics") and the Company's computer accessories business ("Curtis").
The proceeds from these sales aggregated $21.8 million (see Note 20 to the
Consolidated Financial Statements for unaudited pro forma financial
information with respect to these divestitures). Rolodex, Rolodex
Electronics and Curtis are referred to collectively as the "Office Products
Business."
In July 1998, the Company amended its Form 10-K for the year ended December
31, 1997 (the "Form 10-K") to account for the sale of the Office Products
Business as a discontinued operation and, accordingly, the accompanying
consolidated statements of operations and cash flows for the periods prior
to the sale have been reclassified. Revenues associated with the
discontinued Office Products Business for the years 1994, 1995, 1996 and
1997 were $105.2 million, $111.7 million, $80.1 million and $10.8 million,
respectively.
(5) "EBITDA" represents net income before interest expense, interest income,
income taxes, depreciation and amortization, other income, equity in net
income of Thermalex and net gain or net loss on sale of assets. EBITDA is
not intended to represent and should not be considered more meaningful
than, or an alternative to, operating income, cash flows from operating
activities or other measures of performance in accordance with generally
accepted accounting principles. EBITDA data are included because the
Company understands that such information is used by certain investors as
one measure of an issuer's historical ability to service debt. While EBITDA
is frequently used as a measure of operations and the ability to meet debt
service requirements, it is not necessarily comparable to other similarly
titled captions of other companies, or to the defined term "Consolidated
Cash Flow" used in the "Incurrence of Indebtedness and Issuance of
Preferred Stock" covenant described herein, due to the potential
inconsistencies in the method of calculation.
(6) "Adjusted EBITDA" equals EBITDA plus dividends received from Thermalex of
$0.4 million, $3.4 million, $1.5 million, $1.3 million, $1.3 million and
$1.5 million for the years ended December 31, 1995, 1996, 1997 and the six
months and the twelve months ended June 30, 1998 and the six months ended
June 30, 1997, respectively, and excluding the effect of: (i) a $4.3
million gain relating to a change in the Company's pension plan in the year
ended December 31, 1995 (see Note 12 to the Consolidated Financial
Statements); (ii) a $1.5 million restructuring charge at Taylor Publishing
in the year ended December 31, 1996; (iii) $0.4 million, $0.8 million, $1.0
million and $0.2 million of legal expenses relating to the Jostens
antitrust suit for the year ended December 31, 1997, six months and twelve
months ended June 30, 1998 and the six months ended June 30, 1997,
respectively; (iv) $0.7 million of corporate officers' severance for the
six months and twelve months ended June 30, 1998; and (v) Merger expenses
recorded and paid of $1.3 million for the six months and twelve months
ended June 30, 1998.
(7) Net debt represents total debt less cash and cash equivalents and is
calculated based on pro forma cash and debt balances as of June 30, 1998.
RISK FACTORS
In addition to the other information set forth in this Prospectus, Holders
of the Old Notes should carefully consider the risk factors set forth below,
before accepting the Exchange Offer.
Limitations on Access to Cash Flow of Subsidiaries; Holding Company Structure
The Issuer is a holding company, and its ability to make payments in
respect of the Exchange Notes is dependent upon the receipt of dividends or
other distributions from its direct and indirect subsidiaries. The Issuer does
not have, and may not in the future have, any assets other than shares of common
stock of Insilco, which are pledged to secure the obligations of Insilco under
the Existing Credit Facility and are expected to be pledged to secure the
obligation of Insilco under the New Credit Facility. Insilco and its
subsidiaries are parties to the Existing Credit Facility and are expected to be
parties to the New Credit Facility and Insilco is party to the 10 1/4% Note
Indenture and the indenture governing the 12% Notes (the "12% Note Indenture"),
each of which imposes substantial restrictions on Insilco's ability to pay
dividends or make other distributions to the Issuer. Any payment of dividends or
other distributions will be subject to the satisfaction of certain financial
conditions set forth in such indentures and is subject to certain prohibitions
contained in the Existing Credit Facility and expected to be contained in the
New Credit Facility. The ability of Insilco and its subsidiaries to comply with
such conditions or prohibitions may be affected by events that are beyond the
control of the Issuer. If the maturity of the 10 1/4% Notes, the 12% Notes or
the loans under the Existing Credit Facility and the New Credit Facility
were to be accelerated, all such outstanding debt would be required to be
paid in full before Insilco or its subsidiaries would be permitted to
distribute any assets or cash to the Issuer. There can be no assurance
that the assets of the Company would be sufficient to repay all of such
outstanding debt and to meet its obligations under the Indenture. In
addition, under Delaware law, a company is permitted to pay dividends or
make other distributions on its capital stock only out of its surplus or,
in the event that it has no surplus, out of its net profits for the year in
which a dividend or distribution is declared or for the immediately
preceding fiscal year. Surplus is defined as the excess of a company's
total assets over the sum of its total liabilities plus the par value of
its outstanding capital stock. In determining Insilco's ability to pay
dividends or make other distributions to the Issuer, Delaware law will
permit the Board of Directors of Insilco to revalue its assets and
liabilities from time to time to their fair market values in determining
surplus. The Issuer cannot predict what the value of Insilco's or its
other subsidiaries' assets or the amount of their liabilities will be in
the future and, accordingly, there can be no assurance that the Issuer will
be able to receive dividends from Insilco in order to pay its debt service
obligations on the Exchange Notes.
As a result of the holding company structure of the Issuer, the Holders of
the Exchange Notes will be structurally junior to all creditors of the Issuer's
subsidiaries, including Insilco. In the event of insolvency, liquidation,
reorganization, dissolution or other winding-up of the Issuer's subsidiaries,
the Issuer will not receive any funds from its subsidiaries until their
creditors are paid in full. As of June 30, 1998, on a pro forma basis after
giving effect to the Mergers, Merger Financing, and the Refinancing including
the application of net proceeds therefrom, the aggregate amount of indebtedness
and other obligations of the Issuer's subsidiaries (including the 10 1/4% Notes,
the 12% Notes, the Existing Credit Facility and the New Credit Facility and
trade payables) would have been approximately $449.5 million. Further, the
Issuer has $35 million of aggregate liquidation preference of PIK Preferred
Stock outstanding, which will increase as dividends are paid in kind on the PIK
Preferred Stock through August 1, 2003, after which dividends will be payable in
cash, and which will be mandatorily redeemable in cash on August 1, 2010 at the
aggregate liquidation preference of the PIK Preferred Stock.
Substantial Leverage; Liquidity; Stockholders' Deficit
In connection with the Mergers, the Merger Financing and the Refinancing
including the application of the proceeds therefrom, the Company incurred a
significant amount of indebtedness. As of June 30, 1998, after giving pro forma
effect to the Mergers and the Merger Financing and the Refinancing and the
application of the proceeds thereof, the Company would have had total
consolidated indebtedness of approximately $385.8 million and a stockholder's
deficit of $231.5 million. In addition, on such pro forma basis as of June 30,
1998, Insilco could have borrowed an additional $97.0 million under the New
Credit Facility. In addition, subject to the restrictions in the Existing Credit
Facility, the New Credit Facility, the 10 1/4% Note Indenture, the 12% Note
Indenture and the Indenture, the Company may incur significant additional
indebtedness, which may be secured, from time to time.
The level of the Company's indebtedness could have important consequences
to the Company, including: (i) limiting cash flow available for general
corporate purposes, including acquisitions, because a substantial portion of the
Company's cash flow from operations must be dedicated to debt service; (ii)
limiting the Company's ability to obtain additional debt financing in the future
for working capital, capital expenditures or acquisitions; (iii) limiting the
Company's flexibility in reacting to competitive and other changes in the
industry and economic conditions generally; and (iv) exposing the Company to
risks inherent in interest rate fluctuations because certain of the Company's
borrowings may be at variable rates of interest, which could result in higher
interest expense in the event of increases in interest rates.
The Company's ability to make scheduled payments of principal of, to pay
interest on or to refinance its indebtedness and to satisfy its other debt
obligations will depend upon its future operating performance, which will be
affected by general economic, financial, competitive, legislative, regulatory,
business and other factors beyond its control. The Company anticipates that over
the next several years its operating cash flow, together with borrowings under
the Existing Credit Facility and the New Credit Facility, will be sufficient to
meet its anticipated future operating expenses and capital expenditures and to
service interest payments on its outstanding debt as they become due. The
Company believes, however, that based upon the Company's current level of
operations and anticipated growth, it will be necessary to refinance the
Exchange Notes upon their maturity. There can be no assurance that the Issuer
will be able to refinance the Exchange Notes on satisfactory terms, if at all.
Moreover, if the Company's future operating cash flows are less than currently
anticipated it may be forced, in order to make payments on its outstanding debt
obligations, to reduce or delay acquisitions or capital expenditures, sell
assets or reduce operating expenses. If the Company were unable to meet its debt
service obligations (including obligations to pay principal, premium, if any, at
maturity or upon the occurrence of an Event of Default or Change in Control
(each as defined)), it could attempt to restructure or refinance its
indebtedness or to seek additional equity capital. There can be no assurance
that the Company will be able to effect any of the foregoing on satisfactory
terms, if at all. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Restrictions Imposed by Terms of Indebtedness
The Indenture restricts, among other things, the Issuer's ability to incur
additional indebtedness, incur liens, pay dividends or make certain other
restricted payments, enter into certain transactions with affiliates, merge or
consolidate with any other person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the assets of the Issuer. In
addition, the Existing Credit Facility, the 10 1/4% Note Indenture and the 12%
Note Indenture contain, and the New Credit Facility is expected to contain,
other and more restrictive covenants with respect to lnsilco and its
subsidiaries and prohibit Insilco from prepaying its other indebtedness. See
"Description of Certain Indebtedness--Existing Credit Facility," "--10 1/4%
Notes," "--12% Notes" and "Description of Exchange Notes --Certain Covenants."
The Existing Credit Facility requires, and the New Credit Facility is expected
to require, Insilco to maintain specified financial ratios and satisfy certain
other financial condition tests. Insilco's ability to meet those financial
ratios and tests can be affected by events beyond its control, and there can be
no assurance that Insilco will meet those tests. A breach of any of the
foregoing covenants could result in a default under the Existing Credit
Facility, the New Credit Facility, the 10 1/4% Note Indenture, the 12% Note
Indenture and/or the Exchange Notes. Upon the occurrence of an event of default
under the Existing Credit Facility, the New Credit Facility, the 10 1/4% Note
Indenture or the 12% Note Indenture, the holders of such indebtedness could
elect to declare such indebtedness to be immediately due and payable.
Substantially all of Insilco's assets and all of Insilco's outstanding common
stock are pledged as security under the Existing Credit Facility and expected to
be pledged as security under the New Credit Facility. Pursuant to Holdings'
guarantee of the Existing Credit Facility, Holdings may not incur any
indebtedness other than the Exchange Notes. If Insilco were unable to repay
amounts due under the Existing Credit Facility or the New Credit Facility, the
lenders thereunder could proceed against the collateral granted to them to
secure that indebtedness and there can be no assurance that such assets would be
sufficient to repay in full such indebtedness and the other indebtedness of the
Company, including the Exchange Notes. See "Description of Certain Indebtedness
- --Existing Credit Facility" and "--New Credit Facility."
Possible Inability to Repurchase Exchange Notes upon Change of Control or Public
Common Stock Offering
Upon the occurrence of a Change of Control, each Holder of Exchange Notes
will have the right to require the Issuer to repurchase all or any part of such
Holder's Exchange Notes at an offer price in cash equal to 101% of the Accreted
Value thereof, in the case of any such purchase prior to August 15, 2003, or
101% of the principal amount at maturity thereof, in the case of any such
purchase on or after August 15, 2003, in each case plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of repurchase. The
Existing Credit Facility; the 12% Note Indenture and the 10 1/4% Note Indenture
contain, and the New Credit facility is expected to contain, provisions
generally requiring repayment in the event of a change of control and restrict
the payments of dividends by Insilco to the Issuer (except in certain limited
amounts), thus limiting the Issuer's ability to repurchase Exchange Notes. In
addition, the Existing Credit Facility contains, and the New Credit Facility is
expected to contain, provisions that currently prohibit the use of the proceeds
of a Public Common Stock Offering to repurchase Exchange Notes. In the event of
a Public Common Stock Offering, the Company will be required to obtain an
amendment or waiver to the Existing Credit Facility and the New Credit Facility
in order to satisfy its obligations to purchase Exchange Notes with the net cash
proceeds of a Public Common Stock Offering. No assurance can be given that the
Issuer will have sufficient resources to satisfy its repurchase obligation with
respect to the Exchange Notes following a Change of Control or that it will be
able to obtain any such amendment or waiver with respect to a Public Common
Stock Offering. See "--Limitations on Access to Cash Flow of Subsidiaries;
Holding Company Structure" and "Description of Exchange Notes --Repurchase at
the Option of Holders."
Potential Lack of Financing
Consummation of the Mergers required Insilco to make, within 30 days
following such consummation, an Offer to Purchase, as defined in the 10 1/4%
Note Indenture, all $150 million of the outstanding 10 1/4% Notes at a purchase
price equal to 101% of their principal amount, plus accrued interest. Such Offer
to Purchase was commenced on September 16, 1998 and expires on November 16,
1998. The Exchange Offer will be commenced prior to the consummation of the
Offer to Purchase. Based on current market conditions, the Company expects that
substantially all of the 10 1/4% Notes will be tendered. The failure to purchase
any 10 1/4% Notes properly tendered pursuant to the Offer to Purchase would
constitute an event of default under the 10 1/4% Notes, permitting the holders
of all 10 1/4% Notes to accelerate the maturity thereof.
DLJ Capital Funding has committed to lend up to $300 million to Insilco
to refinance the Existing Credit Facility and, together with the proceeds from
the issuance of the Insilco Units, to repurchase all of the 10 1/4% Notes. The
New Credit Facility will consist of a secured revolving credit and term loan
facility. The availability of funds under the New Credit Facility is, however,
subject to significant conditions, including, without limitation, (i) the mutual
agreement of terms customary for transactions of this nature and other customary
conditions with respect to security, guarantee and loan documentation, (ii) the
absence of any facts, events or circumstances that could reasonably be expected
to materially and adversely affect the financial condition, business, assets or
results of operations of Insilco and its subsidiaries, taken as a whole,
(iii) the absence of any material disruption of or material adverse change in
current financial, banking or capital market conditions that could impair the
syndication of the New Credit Facility and (iv) certain other matters.
Accordingly, there can be no assurance that the New Credit Facility will be
available.
If Insilco is unable to enter into the New Credit Facility, it will
maintain the Existing Credit Facility and, subject to borrowing availability
under such facility, use proceeds of borrowings thereunder to purchase the 10
1/4% Notes. The total amount available to the Company under the Existing Credit
Facility together with available cash should be sufficient for such purposes.
However, if all of the 10 1/4% Notes are repurchased, the Company anticipates
that it will either have no or very limited availability for borrowings
remaining under the Existing Credit Facility, which could adversely affect the
Company.
Customer Concentration; Absence of Long-Term Contracts
A significant portion of the Company's sales are made to a relatively small
group of major customers. In 1997, sales to Ford represented approximately 10%
of net sales and sales to a group of the Company's nine next largest customers
represented approximately 22% of net sales. The current size of the Company's
automotive customer base exposes the Company to the risk of changes in the
business condition of its major customers and to the risk that the loss of a
major customer could adversely affect the Company's results of operations. While
the Company has supplied Ford for 40 years, Ford is not contractually bound to
purchase supplies from the Company in the future. Thus, the Company's
relationship with Ford is subject to termination at any time. If the Company
were to lose Ford as a customer, the Company's results of operations would be
adversely affected.
Cyclical Markets
A substantial portion of the Company's revenues derive from sales to
markets that have been historically, and are likely to continue to be, cyclical.
For example, the Company's Automotive Components Group, which accounted for
approximately 44% of the Company's net sales and 45% of operating income for the
year ended December 31, 1997, primarily serves the automobile OEM market and the
automobile parts aftermarket through the manufacture of automotive heat
exchangers and related tubing, and automatic transmission and suspension
components. For the year ended December 31, 1997, however, approximately 16% and
27% of the Automotive Components Group's net sales were attributable to the
automotive aftermarket and nonautomotive OEMs, respectively. The automobile
industry has experienced recessionary or slow growth conditions for substantial
periods in the past and may experience recessionary conditions in the future.
Any substantial weakening of the automobile industry would have an adverse
effect on the Company's results of operations.
Seasonality; Production Disruption
In certain of the Company's businesses in which there is high customer
concentration or high production seasonality, the Company would be exposed to
potentially significant revenue losses if it (or its customers) were to
experience substantial disruption in production. With the continued emphasis on
reductions in component inventories and "just-in-time" deliveries, especially in
the automotive industry, any disruption in production by the Company or its
major customers, through work stoppages or otherwise, could have an immediate
and adverse effect on the Company's results of operations.
Additionally, a portion of the Company's revenues and operating income are
exposed to the seasonality of the yearbook production cycle. A majority of the
annual revenues of Taylor are recognized in the Company's second quarter. Any
disruption during the peak production period (April to June) through work
stoppages, loss of production facilities or otherwise, has caused and could in
the future cause lost revenues or delay revenue recognition in the year in which
it occurred or increase expenses and adversely affect future years' contract
renewals.
Competition
The businesses in which the Company is engaged are highly competitive and
in some cases highly fragmented, with many small manufacturers. In some of its
businesses, especially the data grade connector business and the heat exchanger
business, the Company competes with entities having significantly more
resources. In certain other businesses the Company competes with entities that
have a greater share of the relevant market and lower costs. As competition
increases, profit margins on some of the Company's significant business lines
could decrease, and in the more fragmented markets consolidation could occur,
resulting in the creation of larger and financially stronger competitors. The
Company believes that, to remain competitive and maintain or increase its
profitability, it must pursue a strategy focusing on growth and product
innovation. However, the Company's competitors can be expected to continue to
seek their own growth, to improve the design and performance of their products,
to reduce costs of existing competitive products and to introduce new products
with competitive price and performance characteristics. Although the Company
believes that, with respect to most of its businesses, it has certain
technological, manufacturing and other advantages over its competitors,
maintaining these advantages will require continued investment by the Company in
research and development, sales and marketing, productivity improvements and
information systems. There can be no assurance that the Company will have
sufficient resources to continue to make such investments, that such investments
will be successful or that the Company will be able to maintain its existing
competitive advantages.
Technology and the Development of New Products
The markets for many of the Company's products, particularly the products
produced by Stewart Connector, are characterized by technological change,
evolving industry standards, frequent new product introductions and product
customization. Many of the Company's products require significant planning,
design, development and testing at the technological, product and manufacturing
process levels. In addition, the introduction of new products and technologies
may render existing or proposed products noncompetitive or obsolete. Moreover,
many of the Company's customers utilize its products and proprietary
technologies as components of other products which they manufacture or assemble,
which may become uncompetitive or obsolete. Although the Company works closely
with its customers to stay informed with respect to product development, there
can be no assurance that any of the products currently being developed by the
Company, or those to be developed in the future, will be completed in any
particular time frame or that the Company's or its customers' products or
proprietary technologies will not become uncompetitive or obsolete.
Acquisition Growth Strategy; Management and Funding of Growth
The Company has historically pursued an acquisition strategy, completing
two acquisitions in 1996, and is currently in preliminary discussions with
respect to several new acquisitions as part of its ongoing strategy to promote
growth. There are various risks associated with pursuing a growth strategy of
this nature. Any future growth of the Company will require the Company to manage
its expanding domestic and international operations, integrate new businesses
and adapt its operational and financial systems to respond to changes in its
business environment, while maintaining a competitive cost structure. The
acquisition strategy of the Company will continue to place demands on the
Company and its management to improve the Company's operational, financial and
management information systems, to develop further the management skills of the
Company's managers and supervisors, and to continue to retain, train, motivate
and effectively manage the Company's employees. The failure of the Company to
manage its prior or any future growth effectively could have a material adverse
effect on the Company. There also can be no assurance that suitable acquisition
candidates will be available or that acquisitions can be completed on reasonable
terms.
Additionally, the Company's ability to maintain and increase its revenue
base and to respond to shifts in customer demand and changes in industry trends
will be partially dependent on its ability to generate sufficient cash flow or
obtain sufficient capital for the purpose of, among other things, financing
acquisitions, satisfying customer contractual requirements and financing
infrastructure growth. There can be no assurance that the Company will be able
to generate sufficient cash flow or that financing will be available on
acceptable terms (or permitted to be incurred under the terms of the Existing
Credit Facility, the New Credit Facility, the 10 1/4% Note Indenture, the 12%
Note Indenture, the Indenture and any future indebtedness) to fund the Company's
future growth.
Environmental Matters
The Company's operations are subject to federal, state, local and foreign
laws and regulations relating to the storage, handling, generation, treatment,
emission, release, discharge and disposal of certain substances and wastes. As a
result, the Company is involved from time to time in administrative or legal
proceedings relating to environmental matters and has incurred in the past and
will continue to incur capital costs and other expenditures relating to
environmental matters. Certain properties now or previously owned by the Company
are undergoing remediation. Liability under environmental laws may be imposed on
current and prior owners of property or businesses without regard to fault or to
knowledge about the condition or action causing the liability. As an owner and
operator, the Company may be required to incur costs relating to the remediation
of such owned or operated properties, and environmental conditions could lead to
claims for personal injury, property damage or damages to natural resources.
The Company has in the past and may in the future be named a potentially
responsible party ("PRP") at off-site third-party disposal sites to which it has
sent waste.
The Company believes, based on current information, that any costs it may
incur relating to environmental matters will not have a material adverse effect
on its business, financial condition or its results of operations. There can be
no assurance, however, that the Company will not incur significant fines,
penalties or other liabilities associated with noncompliance or clean-up
liabilities or that future events, such as changes in laws or the interpretation
thereof, the development of new facts or the failure of other PRPs to pay their
share will not cause the Company to incur additional costs that could have a
material adverse effect on its business, financial condition or results of
operations. See "Business --Environmental Regulation and Proceedings."
Dependence on Key Personnel
The Company's success depends to a significant extent upon the services of
its senior management and other management in its various businesses. The
Company could be adversely affected if any of these persons were unwilling or
unable to continue in the Company's employ.
Risks Associated with Foreign Operations; Exchange Rate Fluctuations
The Company's products are manufactured and assembled at facilities in the
United States, the Dominican Republic, Germany and Mexico and sold in many
foreign countries. In 1997, less than 9% of the Company's net sales and costs of
goods sold occurred outside the United States and Canada. International
manufacturing and sales are subject to inherent risks, including changes in
local economic or political conditions, the impositions of currency exchange
restrictions, unexpected changes in regulatory environments, potentially adverse
tax consequences and exchange rate risk. There can be no assurance that these
factors will not have a material adverse impact on the Company's production
capabilities or otherwise adversely affect the Company's business and operating
results.
Control by the DLJMB Funds
Approximately 69.0% of the outstanding shares of Holdings' common stock (up
to 67.0% on a fully diluted basis after giving effect to the issuance of the
Insilco Unit Warrants) are held by the DLJMB Funds. As a result of their stock
ownership, the DLJMB Funds control Holdings (and through Holdings, Insilco) and
have the power (subject to the agreement they have with CVC pursuant to which
CVC is entitled to elect one member of Holdings' Board of Directors); to elect
all of the members of the Board of Directors, appoint new management and approve
any action requiring the approval of the holders of common stock of Holdings or
Insilco, including adopting certain amendments to the certificate of
incorporation of Holdings and Insilco, and approving any acquisition of Holdings
or Insilco or approving sale of all or substantially all of the assets of
Holdings or Insilco. The directors elected by the DLJMB Funds have the authority
to effect decisions affecting the capital structure of Holdings and Insilco,
including the issuance of additional capital stock, the implementation of stock
repurchase programs and the declaration of dividends.
The general partners of each of the DLJMB Funds are affiliates or employees
of, and DLJ Capital Funding, which has committed to provide the Backstop
Facility, is an affiliate of, Donaldson, Lufkin & Jenrette, Inc. ("DLJ, Inc.").
Donaldson, Lufkin & Jenrette Securities Corporation, which was the Initial
Purchaser in the placement of the Old Notes, is also an affiliate of DLJ, Inc.
Tax Consequences of Original Issue Discount; Limitations on Holders' Claims
For U.S. federal income tax purposes, the issue price of a Unit was
allocated between the respective fair market values of the Warrant and the Old
Note. For this reason, and because cash interest will not be payable on the
Senior Discount Notes prior to February 15, 2004, the Senior Discount Notes have
original issue discount from their principal amount at maturity. Consequently,
purchasers of the Senior Discount Notes will be required to include amounts in
gross income for federal income tax purposes in advance of receipt of the cash
payments to which the income is attributable. Because only a portion of the
issue price of a Unit was allocated to a Senior Discount Note, the rate at which
a holder will be required to accrue original issue discount for U.S. federal
income tax purposes will exceed the stated yield on the Senior Discount Notes.
In addition, the Senior Discount Notes constitute "applicable high yield
discount obligations" ("AHYDOs") for federal income tax purposes because the
yield to maturity of the Senior Discount Notes exceeds the relevant applicable
federal rate (the "AFR") at the time of issue by more than five percentage
points. Because the Senior Discount Notes constitute AHYDOs, the Issuer (i) will
not be entitled to deduct original issue discount ("OID") accruing with respect
thereto until such amounts are actually paid, and (ii) may be precluded from
ever deducting a portion of the OID that accrues on the Senior Discount Notes.
See "Certain Federal Income Tax Consequences" for a more detailed discussion of
the federal income tax consequences to the holders of the Exchange Notes
resulting from the ownership or disposition thereof.
Under the Indenture, in the event of an acceleration of the maturity of the
Exchange Notes upon the occurrence of an Event of Default, the Holders of the
Exchange Notes may be entitled to recover only the amount which may be declared
due and payable pursuant to the Indenture, which prior to August 15, 2003, will
be less than the principal amount at maturity of such Exchange Notes. See
"Description of Exchange Notes--Events of Default and Remedies."
If a bankruptcy case is commenced by or against the Issuer under the United
States Bankruptcy Code, the claim of a Holder of Exchange Notes with respect to
the principal amount thereof may be limited to an amount equal to the sum of (i)
the issue price of the Senior Discount Notes as set forth on the cover page
hereof and (ii) that portion of the original issue discount (as determined on
the basis of such issue price) which is not deemed to constitute "unmatured
interest" for purposes of the Bankruptcy Code. Accordingly, Holders of the
Exchange Notes under such circumstances may, even if sufficient funds are
available, receive a lesser amount than they would be entitled to under the
express terms of the Indenture. In addition, there can be no assurance that a
bankruptcy court would compute the accrual of interest under the same rules as
those used for the calculation of original issue discount under federal income
tax law and, accordingly, a Holder might be required to recognize gain or loss
in the event of a distribution related to such a bankruptcy case.
Fraudulent Transfer Statutes
Under federal or state fraudulent transfer laws, if a court were to find
that, at the time the Senior Discount Notes were issued, the Issuer (i) issued
the Senior Discount Notes with the intent of hindering, delaying or defrauding
current or future creditors or (ii)(A) received less than fair consideration or
reasonably equivalent value for incurring the indebtedness represented by the
Senior Discount Notes and (B)(1) was insolvent or was rendered insolvent by
reason of the issuance of the Senior Discount Notes, (2) was engaged, or about
to engage, in a business or transaction for which its assets were unreasonably
small or (3) intended to incur, or believed (or should have believed) it would
incur, debts beyond its ability to pay as such debts mature (as all of the
foregoing terms are defined in or interpreted under such fraudulent transfer
statutes), such court could avoid all or a portion of the Issuer's obligations
to the Holders of the Senior Discount Notes, subordinate the Issuer's
obligations to the Holders of the Senior Discount Notes to other existing and
future indebtedness of the Issuer, the effect of which would be to entitle such
other creditors to be paid in full before any payment could be made on the
Senior Discount Notes, and take other action detrimental to the Holders of the
Senior Discount Notes, including in certain circumstances, invalidating the
Senior Discount Notes. In that event, there would be no assurance that any
repayment on the Senior Discount Notes would ever be recovered by the Holders of
the Senior Discount Notes.
The definition of insolvency for purposes of the foregoing considerations
varies among jurisdictions depending upon the federal or state law that is being
applied in any such proceeding. However, the Issuer generally would be
considered insolvent at the time it incured the indebtedness constituting the
Senior Discount Notes, if (i) the fair market value (or fair saleable value) of
its assets were less than the amount required to pay its total existing debts
and liabilities (including the probable liability on contingent liabilities) as
they become absolute or matured or (ii) it is incurring debts beyond its ability
to pay as such debts mature. There can be no assurance as to what standard a
court would apply in order to determine whether the Issuer was "insolvent" as of
the date the Senior Discount Notes were issued, or that, regardless of the
method of valuation, a court would not determine that the Issuer was insolvent
on that date. Nor can there be any assurance that a court would not determine,
regardless of whether the Issuer was insolvent on the date the Senior Discount
Notes were issued, that the payments constituted fraudulent transfers on another
ground. As a result of the use of the proceeds from the sale of the Senior
Discount Notes to fund the cash portion of the Merger Consideration, a court may
find that the Company did not receive fair consideration or reasonably
equivalent value for the incurrence of the indebtedness represented by the
Senior Discount Notes.
Year 2000
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. The Company believes that its
internal systems are Year 2000 compliant or will be upgraded or replaced in
connection with previously planned changes to information systems prior to the
need to comply with Year 2000 requirements. However, the Company is uncertain as
to the extent its customers and vendors may be affected by Year 2000 issues that
require commitment of significant resources and may cause disruptions in the
customers' and vendors' businesses. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources--Year 2000 Compliance."
No Public Market for the Senior Discount Notes
If the Exchange Notes are traded after their original issuance, they are
expected to trade at varying prices, depending upon prevailing interest rates,
the market for similar securities and other factors, including general economic
conditions and the financial condition and performance of, and prospects for,
the Company. The Senior Discount Notes are eligible for trading in the PORTAL
market. Donaldson, Lufkin & Jenrette Securities Corporation has informed
Holdings that it currently intends to make a market in the Senior Discount
Notes. However, it is not obligated to do so, and any market making activity
with respect to the Senior Discount Notes may be discontinued at any time
without notice.
Restrictions on Transfer
The Old Notes were offered and sold by Holdings in a private offering
exempt from registration requirements pursuant to the Securities Act and have
been resold pursuant to Rule 144A under the Securities Act to "qualified
institutional buyers" (as defined in Rule 144A) and in offshore transactions
complying with Rule 903 or Rule 904 of Regulation S under the Securities Act. As
a result, the Old Notes may not be reoffered or resold by purchasers except
pursuant to an effective registration statement under the Securities Act, or
pursuant to an applicable exemption from such registration, and the Old Notes
are legended to restrict transfer as aforesaid. Each Holder (other than any
Holder who is an affiliate of Holdings) who duly exchanges Old Notes for
Exchange Notes in the Exchange Offer will receive Exchange Notes that are freely
transferable under the Securities Act. Holders who participate in the Exchange
Offer should be aware, however, that if they accept the Exchange Offer for the
purpose of engaging in a distribution, the Exchange Notes may not be publicly
reoffered or resold without complying with the registration and prospectus
delivery requirements under the Securities Act. As a result, each Holder
accepting the Exchange Offer will be required to represent that (i) it is not an
"affiliate" of Holdings, (ii) any Exchange Notes to be received by it are being
acquired in the ordinary course of its business, and (iii) it has no arrangement
or understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such Exchange Notes. If existing Commission
interpretations permitting free transferability of the Exchange Notes following
the Exchange Offer are changed prior to consummation of the Exchange Offer, the
Company will use its best efforts to register the Old Notes for resale under the
Securities Act. See "The Exchange Offer."
The Old Notes currently may be sold to "Qualified Institutional Buyers" (as
defined in Rule 144A under the Securities Act) and in offshore transactions
complying with Rule 903 or Rule 904 of Regulation S under the Securities Act the
restrictions set forth in Rule 144A under the Securities Act or pursuant to
another available exemption under the Securities Act, without registration under
the Securities Act. To the extent that the Old Notes are tendered and accepted
in the Exchange Offer, the trading market for the untendered and tendered but
unaccepted Old Notes could be adversely affected.
USE OF PROCEEDS
Holdings will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
in exchange for Old Notes as described in this Prospectus, Holdings will receive
Old Notes in like principal amount. The Old Notes surrendered in exchange for
the Exchange Notes will be retired and canceled. Accordingly, the issuance of
the Exchange Notes will not result in any change in the indebtedness of the
Company.
The net proceeds to Holdings from the sale of the Units was approximately
$67.0 million (after deduction of underwriting discounts and commissions and
other expenses of the offering). Such net proceeds, together with borrowings by
Insilco under the Existing Credit Facility, proceeds from the issuance of the
PIK Preferred Stock, the DLJMB Warrants and the proceeds received upon the
issuance of Silkworm Common Stock, were used to pay the cash component of the
Merger Consolidation, the Option Cash Payments and fees and expenses incurred in
connection with the Mergers.
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company as of June 30, 1998 (i) on an actual basis, (ii) on a pro forma
basis after giving effect to the Mergers and the Merger Financing and (iii) as
adjusted to give effect to the Refinancing. See "Use of Proceeds." This
table should be read in conjunction with the Consolidated Financial
Statements, including the notes thereto, the unaudited pro forma condensed
consolidated financial statements and notes thereto, included in "Unaudited
Pro Forma Condensed Consolidated Financial Statements," "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and "Summary--Recent Developments."
<TABLE>
As of June 30, 1998
--------------------------------------
Pro Forma
--------------------------
Actual Merger Refinancing
------ --------- -----------
(in millions)
<S> <C> <C> <C>
Cash and cash equivalents............................. $ 7.0 $ 7.0 $ 7.0
====== ====== ======
Long-term debt:
Revolving Credit Facility ........................... $114.6 $156.4 $ 95.4
Term Loan ........................................... -- -- 100.0
10 1/4% Notes........................................ 150.0 150.0 --
12% Notes ........................................... -- -- 120.0
Senior Discount Notes................................ -- 70.2 70.2
Other debt obligations............................... 0.2 0.2 0.2
------ ------ ------
Total long-term debt (including current portion)... 264.8 376.8 385.8
------ ------ ------
PIK Preferred Stock................................ -- 35.0 35.0
Stockholders' deficit.............................. (90.8) (226.3) (231.5)
------ ------ ------
Total capitalization............................. $174.0 $185.5 $189.3
====== ====== ======
</TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data presented below as of and
for each of the years in the four year period ended December 31, 1997 are
derived from the Consolidated Financial Statements and accompanying notes
included elsewhere herein, which have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The information in this table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements.
The selected historical consolidated financial data as of and for the six months
ended June 30, 1997 and 1998 are unaudited; however, in management's opinion,
they include all adjustments (consisting of only normal recurring accruals)
necessary for a fair presentation of results for such interim periods. Interim
results are not necessarily indicative of results for the full year.
<TABLE>
<CAPTION>
Six Months Ended
Predecessor Years Ended December 31, June 30,
----------- ----------------------------------------- ----------------------
1993 1994 1995 1996 1997 1997 1998
------------------- -------- -------- -------- ---------- -------- -----------
To From (in millions)
3/31 4/1
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations Data:
Net sales .................................$ 79.2 $ 332.9 $ 438.4 $ 449.5 $ 492.4 $ 528.2 $ 276.2 $ 287.3
Operating income (1) ...................... 4.2 (3.5) 9.5 38.9 48.4 51.1 28.8 24.0
Other income (expense): 0.0
Interest expense ........................ (9.6) (26.9) (29.1) (19.5) (18.3) (20.5) (7.7) (13.8)
Interest income ......................... 0.3 1.7 1.8 1.4 0.7 2.8 2.0 0.1
Other income, net(2) .................... (0.1) 0.9 3.2 13.9 7.7 3.4 1.6 3.4
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before reorganization items,
income taxes and extraordinary
item .................................... (5.2) (27.8) (14.6) 34.7 38.5 36.8 24.7 13.7
Reorganization items (net) ................ 21.8 -- -- -- -- -- -- --
Income tax expense ........................ (0.6) (0.4) (5.7) (16.7) (13.3) (13.4) (9.1) (6.5)
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before
extraordinary item ...................... 16.0 (28.2) (20.3) 18.0 25.2 23.4 15.6 7.2
Income (loss) from
discontinued operations, net
of tax(3) ............................... (15.4) (18.4) (9.7) (15.4) 13.8 58.9 58.9 --
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item ...................... 0.6 (46.6) (30.0) 2.6 39.0 82.3 74.5 7.2
Extraordinary item, net of tax ............ 448.3 -- (2.1) -- -- (0.7) -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income ................................$ 448.9 $ (46.6) $ (32.1) $ 2.6 $ 39.0 $ 81.6 $ 74.5 $ 7.2
======== ======== ======== ======== ======== ======== ======== ========
Balance Sheet Data (at period
end):
Working capital ...........................$ 94.1 $ 98.1 $ 33.9 $ 44.9 $ 51.4 $ 39.5 $ 145.0 $ 64.2
Total assets .............................. 562.0 517.7 368.7 340.1 348.4 302.7 423.2 314.1
Long-term debt ............................ 306.7 307.4 198.1 186.5 161.0 257.7 169.8 264.8
Stockholders' equity (deficit) ............ 64.2 18.5 (13.5) (15.8) 33.4 (102.3) 108.5 (90.8)
Ratio Data:
Ratio of earnings to fixed
charges ................................. 0.47x (0.02)x (0.50)x (2.63)x 2.91x 2.64x 3.89x 1.92x
</TABLE>
(1) Operating income in 1993, 1994 and 1995 includes the deduction for the
amortization of Reorganization Goodwill of $27.3 million, $34.8 million and
$16.2 million, respectively. Operating income in 1995 includes a gain of
$4.3 million related to a change in the Company's pension plan (see Note 12
to the Consolidated Financial Statements appearing elsewhere herein).
(2) Other income, net in 1995 includes favorable adjustments of $3.6 million
related to the Company's environmental liabilities and $1.5 million related
to the resolution of several legal disputes and a $4 million gain on the
sale of idle corporate assets. Other income, net in 1996 includes a $2.2
million favorable adjustment related to the satisfaction of certain of the
Company's environmental liabilities following completion of a site clean-up
for an amount less than previously estimated.
(3) In March 1997, the Company completed the sale of its Office Products
Business with the divestiture of the Rolodex Business for $112.6 million,
net of transaction costs, resulting in a gain of $57.8 million, net of
taxes of $37.2 million. The divestiture of the Rolodex Business was
preceded in 1996 by the divestiture of Rolodex Electronics and Curtis. The
proceeds from these sales aggregated $21.8 million (see Note 20 to the
Consolidated Financial Statements for unaudited pro forma financial
information with respect to these divestitures).
In July 1998, the Company amended its Form 10-K to account for the sale of
the Office Products Business as a discontinued operation and, accordingly,
the consolidated statements of operations and cash flows for the periods
prior to the sale have been reclassified. Revenues associated with the
discontinued Office Products Business for the years 1994, 1995, 1996 and
1997 were $105.2 million, $111.7 million, $80.1 million and $10.8 million,
respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The Company, directly and through its subsidiaries, is a diversified
manufacturer of automotive components and telecommunications and electronics
components and a publisher of specialty publishing products, chiefly student
yearbooks. The Company, with three reporting segments (the Automotive Components
Group, the Technologies Group, and Specialty Publishing), conducts its business
in eight separate operating units, including both divisions and subsidiaries.
The Company's Specialty Publishing segment, formerly the Company's Office
Products/Specialty Publishing segment, was renamed following the divestiture of
the Rolodex Business in March 1997.
The Automotive Components Group is comprised of businesses that produce
radiators and other heat exchanger components, equipment and systems used in the
production of heat exchangers, heavy gauged stamped automotive parts
(principally, transmission clutch plates) and welded stainless steel tubing, and
a 50% owned joint venture, Thermalex, which produces precision extruded aluminum
tubing. The Automotive Components Group serves both original equipment
manufacturers and aftermarket customers in the automotive, specialty vehicle,
truck and off-road vehicle and industrial equipment markets and also serves the
marine and architectural markets with decorative stainless steel tubing.
The Technologies Group manufactures high-performance data transmission
connectors, small electric power transformers, precision stampings and wire and
cable assemblies. The Technologies Group serves the computer networking,
telephone digital switching, data processing, automotive, medical equipment and
other markets.
Specialty Publishing consists of Taylor, a publisher of student yearbooks.
Taylor is highly seasonal, with the majority of sales occurring in the second
and third quarters of each year.
During 1996 and 1997, the Company completed several material transactions
affecting its ongoing operations and debt and capital structure. A summary of
these transactions follows:
o Acquisitions: In 1996, the Company acquired Great Lake, Inc. ("Great
Lake") which serves the automotive, heavy truck and industrial
manufacturing radiator replacement market, and the automotive aluminum
tube business of Helmut Lingemann GmbH & Co. (the "Lingemann
Business"). These acquisitions have been accounted for as purchases
and, accordingly, the purchase prices have been allocated to the
assets and liabilities acquired based on their fair values at the
acquisition dates. The operating results of the businesses acquired
have been included for the periods subsequent to the acquisition date.
o Divestitures: The Office Products Business of the Company's Office
Products/Specialty Publishing Group was divested in three separate
transactions during 1996 and the first quarter of 1997. The 1996
transactions included the divestitures of Curtis and Rolodex
Electronics for $21.8 million in the aggregate which was used to
reduce the outstanding amounts on the Company's bank loans. On March
5, 1997, the remainder of the Office Products Business, which
consisted of the Rolodex Business, was sold for net cash proceeds of
approximately $112 million (the "Rolodex Proceeds"). As a result of
the sale of the Rolodex Business, the Office Products Business has
been accounted for as a discontinued operation. See "--Discontinued
Operations."
o Refinancing: The Company entered into the Existing Credit Facility as
of July 3, 1997 that among other things, provides for (i) a $200
million revolving credit facility, (ii) a $50 million sublimit for
commercial and standby letters of credit and (iii) a $50 million
sublimit for advances in selected foreign currencies.
o Issuance of Subordinated Debt: On August 12, 1997, the Company issued
$150 million aggregate principal amount of the 10 1/4% Notes,
realizing therefrom net proceeds of $145.9 million.
o Share Repurchase: In the third quarter of 1997, the Company, using the
Rolodex Proceeds and the proceeds received on the issuance of the 10
1/4% Notes, consummated the $220 million Share Repurchase.
The discussion that follows of the financial condition and results of
operations includes the effect of the transactions discussed above in the
respective periods in which they were recorded. As a result, the comparability
of the results is significantly impacted. Pro forma results of operations,
assuming all these transactions occurred at the beginning of the respective
periods, are presented in Note 20 to the Consolidated Financial Statements.
"The Fresh Start" Accounting
On March 31, 1993, the Company adopted the "fresh start" accounting
principles prescribed by the Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" (the "Reorganization
SOP"), issued by the American Institute of Certified Public Accountants. The
"fresh start" accounting principles required the Company to value its assets and
liabilities at fair values and eliminate its accumulated deficit.
"Fresh start" accounting was required because on April 1, 1993, the Company
and certain of its subsidiaries emerged from Chapter 11 of the United States
Bankruptcy Code (the "Chapter 11 cases") pursuant to a plan of reorganization
(the "Plan of Reorganization"). For financial reporting purposes, the effective
date of the Plan of Reorganization was March 31, 1993 (the "Plan Effective
Date"). For periods prior to the Plan Effective Date, the Company sometimes is
referred to herein as the "Predecessor". The Chapter 11 cases were commenced on
January 13, 1991 (the "Petition Date").
One effect of "fresh start" accounting on the financial statements was the
negative impact on the reported operating income of each business segment and
the consolidated net income resulting from the noncash amortization of the
Reorganization Goodwill. Such amortization expense totaled $16.2 million
(exclusive of amortization expense related to discontinued operations) in 1995.
At December 31, 1995, Reorganization Goodwill was fully amortized.
Discontinued Operations
On March 5, 1997, the Company completed the sale of its Office Products
Business within the Office Products/Specialty Publishing Group with the
divestiture of the Rolodex Business for $112.6 million, net of transaction
costs. The divestiture of the Rolodex Business was preceded in 1996 by the
divestiture of Rolodex Electronics and Curtis for aggregate proceeds of $21.8
million. The Office Products Business segment has been accounted for as a
discontinued operation and, accordingly, the consolidated statements of
operations and cash flows for the periods prior to the sale have been
reclassified.
Merger Costs
The Company incurred $30.1 million in expenses in connection with
consummating the Mergers. These expenses consisted primarily of financing fees,
professional fees, compensation costs, registration fees and other expenses. The
Company (i) recorded $1.3 million of such expenses in the quarter ended June 30,
1998, (ii) recorded a one-time pretax charge of approximately $24.2 million in
the quarter ended September 30, 1998 and (iii) will amortize all of the
remaining capitalized costs in future periods. As a result, the Company has
recorded a significant net loss in the quarter ended September 30, 1998.
Results of Operations
Summarized sales and operating income (loss) by business segment for the
years ended December 31, 1995, 1996 and 1997, and the six months ended June 30,
1997 and 1998 are set forth in the following table and discussed below:
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
------------------------------------- -------------------------------
1995 1996 1997 1997 1998
--------- --------- --------- ---------- --------------
(in millions)
<S> <C> <C> <C> <C> <C>
SALES
Automotive Components Group ......... $ 180.3 $ 209.7 $ 231.1 $ 116.2 $ 123.8
Technologies Group .................. 170.6 183.7 198.9 98.0 99.0
Specialty Publishing ................ 98.6 99.0 98.2 62.0 64.5
-------- -------- -------- -------- --------
Consolidated sales .................. $ 449.5 $ 492.4 $ 528.2 $ 276.2 $ 287.3
======== ======== ======== ======== ========
OPERATING INCOME (LOSS)(1)(2)
Automotive Components Group ......... $ 20.4 $ 23.9 $ 23.1 $ 12.6 $ 11.5
Technologies Group .................. 20.3 24.5 23.0 11.4 10.6
Specialty Publishing ................ (0.7) 1.6 5.3 5.1 3.3
Unallocated corporate costs .......... (1.1) (1.6) (0.3) (0.3) (0.1)
Unallocated corporate merger expenses -- -- -- -- (1.3)
-------- -------- -------- -------- --------
Consolidated operating income ........ $ 38.9 $ 48.4 $ 51.1 $ 28.8 $ 24.0
======== ======== ======== ======== ========
</TABLE>
(1) Segment operating income (loss) reflects the allocation of corporate
overhead. In 1995 corporate overhead was reduced by a $4 million gain
relating to a change in the Company's pension plan (See Note 12 to the
Consolidated Financial Statements). The allocation of corporate overhead
follows:
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
------------------------------------- -------------------------------
1995 1996 1997 1997 1998
--------- --------- --------- ---------- --------------
(in millions)
<S> <C> <C> <C> <C> <C>
Automotive Components Group... $ 1.3 $ 3.0 $ 3.5 $ 1.8 $ 1.9
Technologies Group............ 1.4 3.1 3.7 2.0 2.0
Specialty Publishing.......... 0.9 2.0 1.8 1.0 1.4
-------- -------- --------- -------- --------
$ 3.6 $ 8.1 $ 9.0 $ 4.8 $ 5.3
======== ======== ========= ======== ========
</TABLE>
(2) 1995 segment operating income (loss) includes a deduction of $16.2 million
for the amortization of Reorganization Goodwill.
Recent Developments
Third Quarter Results. Sales for the quarter ended September 30, 1998
increased 3% to $135.1 million from $131.4 million during the comparable period
in 1997. Sales for the nine-month period ended September 30, 1998 increased 4%
to $422.4 million from $407.6 million during the comparable period in 1997. The
sales increase in both periods was attributable to strong results reported by
the Company's Automotive Components Group (11% sales growth in the third
quarter) which offset declines in the Company's Technologies Group (9% sales
decline in the third quarter). The Automotive Components Group's performance was
led by strong growth of heat exchanger sales. The Technologies Group's
performance was negatively impacted by the overall slowdown in the global
telecommunications and electronics markets, which has continued into the fourth
quarter.
The Company had Adjusted EBITDA of $14.4 million for the quarter ended
September 30, 1998, compared to $15.7 million recorded in the comparable period
in 1997. The Company's Adjusted EBITDA for the third quarter excludes $24.2
million of charges related to the Mergers and $1.4 million of other
non-recurring charges related primarily to management severance and legal
expenses. For the nine months ended September 30 ,1998, Adjusted EBITDA was
$53.3 million as compared to $55.8 million for the comparable period in 1997.
Adjusted EBITDA for the nine months excludes $25.5 million of merger-related
charges and $3.0 million of other non-recurring charges related primarily to
management severance and legal expenses.
The Company's 1998 third quarter profitability was negatively impacted by
(i) sales declines, a less favorable sales mix and increased pricing competition
in the Company's Technologies Group and (ii) the results of its McKenica
division, a tubing mill capital equipment manufacturer. The Technologies Group,
which posted $1.8 million and $2.2 million declines in EBITDA in the three- and
nine-month periods ended September 30, 1998, respectively, was affected by the
overall slowdown in the global telecommunications and electronic markets.
McKenica, which posted $0.6 million and $2.2 million declines in EBITDA in the
three- and nine-month periods ended September 30, 1998, respectively, was
affected by lower orders from Asian and domestic customers. Excluding McKenica's
results, the Company's Adjusted EBITDA in the third quarter would have been
$14.6 million in 1998 as compared to $15.2 million for the comparable period in
1997, and Adjusted EBITDA for the nine-month period would have been $53.5
million as compared to $53.7 million for the comparable period in 1997.
Sales at the Company's Taylor Publishing business unit were up 7% in the
third quarter to $27.4 million, due to early delivery of fall yearbooks,
compared to 1997 third quarter sales of $25.6 million. Taylor's EBITDA of $1.7
million was flat compared to the third quarter last year.
Potential Charge Associated with Cost Reduction Program. The Company is
reviewing a number of programs designed to improve operating efficiencies and
reduce expenses. While the scope of these programs has not been finalized, the
Company currently expects to record non-recurring charges of approximately $5
million in the aggregate during the fourth quarter of 1998 and the first quarter
of 1999.
Potential Acquisitions. The Company is in negotiations with respect to two
potential acquisitions neither of which, if consummated, individually would be
material to the Company's financial position.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Sales
Total net sales from continuing operations of $170.0 million for the second
quarter of 1998 were relatively flat compared to the corresponding period in
1997 as increased sales at the Automotive Components Group and Taylor Publishing
were essentially offset by a decline in the Technologies Group. In the first six
months of 1998, net sales from continuing operations of $287.3 million increased
4% or $11.1 million from 1997 primarily due to increased sales of automotive
tubing and industrial and off-road radiators at the Automotive Components Group
and, to a lesser degree, increases at the Technologies Group and Specialty
Publishing.
The Automotive Components Group's net sales increased 3% or $1.6 million in
the second quarter of 1998 and 6% or $7.5 million in the first six months of
1998 compared to the corresponding periods of 1997 due to increased automotive
tubing sales and increased sales of radiators to original equipment
manufacturers serving the off-road and industrial equipment markets. These
increases were partially offset by a decline in sales at the Company's heat
exchanger equipment manufacturing unit, McKenica, which continues to experience
a substantial decline in order backlog. In addition, Steel Parts reported lower
sales from the prior year periods due to the timing of a major automotive OEM's
scheduled annual plant shutdown.
The Technologies Group's net sales decreased 4% or $2.1 million in the
second quarter of 1998 compared to the corresponding period in 1997 due to sales
declines at Escod, Signal Transformer and Stewart Stamping primarily due to a
general weakness in the electronics market, which has continued into the third
quarter. These declines were partially offset by increased sales at the El Paso
stamping facility which moved from the start-up phase in 1997 to production
phase in 1998 and increased sales of Stewart Connector's modular data
interconnect products due to increased demand from a major telecommunications
customer. Sales in the Technologies Group increased 1% or $1.1 million in the
first six months of 1998 compared to the corresponding period in 1997 due to
increased sales from the El Paso stamping facility, increased second quarter
sales of Stewart Connector's modular data interconnect products and increased
first quarter sales of wire and cable assembly products. These increases were
partially offset by declines at Signal Transformer and Stewart Stamping in the
second quarter of 1998.
Taylor Publishing's net sales for the second quarter and first six months
of 1998 increased 1% and 4%, respectively, compared to the corresponding periods
in 1996 in response to certain Taylor initiatives to increase yearbook revenues.
Operating Income
Operating income for the second quarter decreased $5.2 million from $19.4
million in 1997 to $14.2 million in 1998. The decline in operating income was
due in part to increased selling, general and administrative expenses as
follows: $1.3 million of expenses related to the Merger, $0.6 million in legal
expenses (compared to $0.2 million in 1997) associated with Taylor's antitrust
lawsuit against Jostens, Inc. (for which Taylor received a favorable judgment
totaling $25.2 million, which judgment is likely to be appealed and has not been
reflected in the Company's operating results; see "Business--Legal
Proceedings"), and corporate officers severance expenses totaling $0.4 million.
In addition, the Company experienced an operating loss in the second quarter at
its McKenica unit due to a lack of available order backlog, increased costs,
primarily higher shipping costs, from production delays at Taylor Publishing
during its peak yearbook production season, and lower operating margins at
Stewart Connector and Steel Parts compared to the year ago quarter. In the first
six months of 1998, operating income decreased $4.8 million to $24.0 million
from $28.8 million in 1997. In the first six months of 1998, selling, general
and administrative expenses increased over 1997 due to $1.3 million of expenses
related to the Mergers, $0.8 million of expenses related to the Company's
antitrust lawsuit against Jostens, Inc. (compared to $0.2 million in 1997) and
$0.7 million of corporate officers severance expenses. Additionally, the Company
experienced increased costs at Taylor Publishing and lower operating margins at
Steel Parts and Stewart Connector.
The Automotive Components Group's operating income in the second quarter of
1998 compared to the corresponding period of 1997 decreased to $6.0 million from
$6.9 million. The Automotive Components Group was impacted by an operating loss
at the Company's McKenica unit, caused by a significant sales decline from the
second quarter of 1997, and lower operating margins at Steel Parts. These
declines were partially offset by improved operating income at the automotive
tubing and heat exchanger businesses of Thermal Components Group. For the first
six months of 1998, the Automotive Components Group's operating income compared
to the corresponding period of 1997 decreased to $11.5 million from $12.6
million due to an operating loss at the Company's McKenica unit, caused by a
significant sales decline from 1997, and lower operating margins at Steel Parts.
These declines were partially offset by gains in operating performance at the
Company's heat exchanger and automotive tubing business.
The Technologies Group's operating income decreased to $5.3 million in the
second quarter of 1998 from $6.4 million in the same period of 1997 due to lower
demand and inventory correction by electronics market customers. Operating
income at Stewart Connector decreased from the prior year period due to a less
favorable sales mix of products and price degradation on certain mature
connector products. At Signal Transformer operating income decreased
significantly due to the lower sales volume caused by weak demand in the
electronics market. For the first six months of 1998, the Technologies Group's
operating income, compared to the corresponding period of 1997, decreased to
$10.6 million from $11.4 million. Operating income was impacted by the decreased
sales of power transformers and competitive pricing pressures in the connector
market. Partially offsetting these declines, operating income improved over the
prior year at Escod, Stewart Stamping and the El Paso stamping facility.
Taylor Publishing's operating income decreased to $4.3 million from $6.1
million in the second quarter of 1998 compared to the same period of 1997 and to
$3.3 million from $5.1 million in the first half of 1998 compared to the prior
year. These decreases from 1997 were due to increased costs of air freight
following production delays in the second quarter which is the peak yearbook
production and delivery period. In addition, Taylor had increased administrative
expenses, including legal fees related to its lawsuit against Jostens, Inc. (see
Note 11 to the Unaudited Condensed Consolidated Financial Statements included
elsewhere herein).
Other Income (Expense)
Other income for the second quarters of 1998 and 1997 included $0.7 million
and $0.8 million, respectively, of equity income from the Company's
unconsolidated joint venture, Thermalex, which manufactures extruded aluminum
tubing primarily for automotive air conditioning condensers. For the first six
months of 1998, other income included $1.5 million of equity income from
Thermalex compared to $1.5 million in the first six months of 1997. Interest
expense increased 68% or $2.8 million and 78% ($6.0 million) in the second
quarter and first six months of 1998, respectively, from the corresponding 1997
periods due to the issuance of $150 million of the 10 1/4% Notes completed in
the third quarter of 1997 (see Note 3 to the Unaudited Condensed Consolidated
Financial Statements included elsewhere herein). Interest income decreased $1.6
million and $2.0 million in the second quarter and first six months of 1998,
respectively, from the corresponding 1997 periods because the Company had
substantial interest income in 1997 on the proceeds from the sale of the Rolodex
Business (see Note 3 to the Unaudited Condensed Consolidated Financial
Statements included elsewhere herein).
"Other income, net", included in Other income (expense), for the second
quarter and first six months of 1998 increased $1.1 million and $2.0 million
from the corresponding periods of 1997, respectively. Other income in the second
quarter of 1998 included gains on the sale of idle assets.
Income Tax Expense
The Company's effective income tax rate of 53% for the second quarter of
1998 increased significantly from both the 1997 second quarter rate of 38% and
the 1998 first quarter rate of 35% primarily due to the effects of the Mergers
(see Note 10 to the Unaudited Condensed Consolidated Financial Statements
included elsewhere herein). Certain transaction costs expected to be incurred as
part of this transaction will not be deductible for tax purposes. Considering
the effects of the Mergers, and other favorable permanent and temporary timing
items, the Company does not expect to incur any significant additional cash
outlay for 1998 income taxes.
1997 Compared to 1996
Sales
Consolidated net sales from continuing operations of $528.2 million
increased 7% ($35.8 million) in 1997 compared to 1996 net sales from continuing
operations of $492.4 million primarily due to a 10% ($21.4 million) increase at
the Automotive Components Group and an 8% ($15.2 million) increase at the
Technologies Group.
Sales in the Automotive Components Group segment were $231.1 million, an
increase of 10% over 1996 sales of $209.7 million. The increased sales were
attributable to Thermal's increased sales of automotive heat exchangers and
related components from the July 1996 acquisition of the Lingemann Business and
higher sales of transmission and other stamped automotive parts at Steel Parts.
The Lingemann Business contributed $31.6 million of sales in 1997 compared to
$13.1 million in 1996. Approximately 30% of Thermal's sales are to the
automotive OEM market. Steel Parts achieved sales growth over 1996 due to higher
parts content per automobile, as automobile manufacturers have moved from
three-speed to four and five-speed automatic transmissions. Steel Parts is
primarily an OEM supplier of transmission and other automotive components.
Sales in the Technologies Group were $198.9 million, an increase of 8% over
1996 sales of $183.7 million. Sales of the wire and cable assembly business,
Escod, were up 19% over 1996 due to strong demand from one of its major
customers as well as continued expansion of its customer base. Sales at Signal
Transformer increased 9% over 1996 primarily due to higher demand for
internationally certified products from electronic OEMs. Sales of precision
stampings at the segment's Stewart Stamping unit increased 6% due to new product
introductions, as well as the continued strength of the automotive, electrical
control and circuit protection markets. Stewart Connector, the Company's
manufacturer of high speed data transmission connectors which serves the
computer networking market, had a 1% decrease in sales from the prior year
principally as a result of price erosion of existing products and delayed
new product availability. Foreign sales accounted for approximately 41% and 40%
of Stewart Connector's sales in 1997 and 1996, respectively.
Sales at Taylor Publishing were $98.2 million, relatively flat compared to
prior year sales of $99.0 million.
Operating Income
The Company's operating income from continuing operations of $51.1 million
increased 6% ($2.7 million) in 1997 compared to 1996 primarily due to higher
operating income at Taylor Publishing caused by increased productivity and a
$1.5 million restructuring charge recorded in 1996.
The Automotive Components Group's operating income in 1997 compared to 1996
decreased to $23.1 million from $23.9 million. Lower operating income from
Thermal was partially offset by increased operating income at the Company's
stainless steel tubing business and stamped steel parts business. Thermal's
operating performance was impacted by (i) decreased sales at the Company's heat
exchanger equipment manufacturer which continues to experience a substantial
decline in order backlog; (ii) increased research and development costs
associated with the Group's new technical center; (iii) additional expenses
related to the integration of the Lingemann Business into the Company's
operations; and (iv) soft aftermarket demand for automotive heat exchangers.
The Technologies Group's operating income in 1997 compared to 1996
decreased to $23.0 million from $24.5 million primarily due to decreased
operating margins at Stewart Connector caused principally by competitive price
pressure in the connector market and delayed introductions of new connector
products. In addition, the Company incurred additional start-up costs at its El
Paso stamping facility. These declines were partially offset by the improved
sales and operating margin at Escod.
In 1997, the operating income of the Specialty Publishing business, Taylor
Publishing, improved to $5.4 million from $1.7 million in 1996 due to improved
operating margins from increased productivity and a $1.5 million restructuring
charge incurred in 1996.
Other Income (Expense)
Interest expense increased approximately 12% or $2.2 million in 1997
compared to 1996 due to the refinancing completed in the third quarter of 1997.
Interest income increased $2.1 million over 1996 due to interest income earned
on the proceeds from the sale of the Rolodex Business prior to the Share
Repurchase. Other income for 1996 included a favorable adjustment of $2.2
million related to the Company's environmental liabilities for 1996 following
completion of a site clean-up for an amount less than previously estimated.
Equity income from the Company's unconsolidated joint venture, Thermalex,
was $2.6 million in 1997 compared to $2.9 million in 1996. Thermalex incurred
additional expenses in 1997 related to the start-up of a new extrusion press and
plant expansion.
Income Tax Expense
The Company's actual income tax obligations during 1997 ($10.5 million) and
1996 ($2.4 million) were substantially less than the total amount of income
taxes recognized ($47.9 million and $12.4 million, respectively) because
previously generated net operating losses and other deferred tax assets were
utilized to reduce the tax obligations. During 1996, additional deferred tax
assets of $10.7 million were recognized and recorded on the balance sheet
because it was concluded that it was more likely than not that such amounts
would be realized in future years. In accordance with the Reorganization SOP,
the tax benefits associated with the recognition of pre-effective date deferred
tax assets, ($10.2 million in 1996) were recorded as an increase to additional
paid-in capital.
Discontinued Operations
On March 5, 1997, the Company completed the sale of its Office Products
Business within the Office Products/Specialty Publishing Group with the sale of
the Rolodex Business for $112.6 million, net of transactions costs. The
divestiture of the Rolodex Business was preceded in 1996 by the divestiture of
Rolodex Electronics and Curtis for aggregate sales proceeds of $21.8 million.
As a result of the sale, the Office Products Business has been accounted
for as a discontinued operation and, accordingly the accompanying consolidated
statements of operations and cash flows for the periods prior to the sale have
been reclassified. Revenues associated with the discontinued Office Products
Business for the years 1997, 1996, and 1995 were $10.8 million, $80.1 million,
and $111.7 million, respectively.
1996 Compared to 1995
Sales
Net sales from continuing operations in 1996 were $492.4 million, an
increase of 10% over 1995 net sales from continuing operations of $449.5 million
primarily due to a 16% ($29.4 million) increase at the Automotive Components
Group and an 8% ($13.1 million) increase at the Technologies Group.
Sales in the Automotive Components Group segment were $209.7 million, an
increase of 16% over 1995 sales of $180.3 million. The increased sales were
attributable to $20.5 million of sales from the 1996 acquisitions of the
Lingemann automotive aluminum tube business and Great Lake as well as higher
content per automobile of clutch plates in transmissions and higher sales of
aluminum heat exchangers and related products and equipment manufactured by the
segment's Thermal unit. Approximately 29% of Thermal's sales are to the
automotive OEM market. Steel Parts achieved sales growth over 1995 due to higher
parts content per automobile, as automobile manufacturers have moved from
three-speed to four and five-speed automatic transmissions. Steel Parts is
primarily an OEM supplier of transmission and other automotive components. The
increased sales at Thermal and Steel Parts were partially offset by a decline
from the prior year at Romac, the Company's manufacturer of stainless steel
tubing sold principally in marine and distribution markets.
Sales in the Technologies Group were $183.7 million, an increase of 8% over
1995 sales of $170.6 million. Sales of the wire and cable assembly business,
Escod, were up 23% over 1995, reflecting continued expansion of its customer
base and a rebound in orders from its largest telecommunications customer.
Stewart Connector, the Company's manufacturer of high speed data transmission
connectors which serves the computer networking market, had an 8% increase in
sales over the prior year with 15% growth in the fourth quarter of the year,
primarily as a result of a new contract with a major telecommunications customer
for connector/cable assemblies. Foreign sales accounted for approximately 40%
and 43% of Stewart Connector's sales in 1996 and 1995, respectively. Sales at
the segment's Signal Transformer unit were flat compared to the prior year.
Sales of precision stampings at the segment's Stewart Stamping unit increased 5%
due to the underlying strength of the markets that it serves, including the
housing construction and automotive markets.
Sales at Taylor Publishing were $99.0 million, relatively flat compared to
prior year sales of $98.6 million.
Operating Income
Operating income (loss) comparisons between 1996 and 1995 are more
difficult to present than the sales comparisons because of the effects of "fresh
start" accounting on the results of operations. Due to the effects of "fresh
start" accounting, the Company's 1995 operating results were depressed by a
$16.2 million charge for the amortization of Reorganization Goodwill ($3.4
million, $7.2 million and $5.6 million of which were allocated to the Automotive
Components Group, Technologies Group and Specialty Publishing, respectively).
The consolidated reported operating income from continuing operations in 1996
improved to $48.4 million from $38.9 million in 1995. (See the table on page 32
regarding the comparability between the periods).
Excluding the effects of "fresh start" accounting, as described above, the
operating performance decreased $6.7 million or 12% due to higher corporate
overhead, decreased operating margins in the Technologies Group and a $1.5
million restructuring charge recorded by Taylor Publishing. The higher corporate
overhead in 1996 is primarily due to a $4.3 million gain recorded in 1995
related to a change in the Company's pension plan which temporarily reduced
corporate overhead. These items and other operational year-to-year changes are
discussed below in the analysis of each segment's operating income.
The Automotive Components Group's operating income in 1996 compared to 1995
increased to $23.9 million from $20.4 million. The results in 1995 were
negatively impacted by the amortization of Reorganization Goodwill totaling $3.4
million. Excluding amortization of Reorganization Goodwill, the segment's
operating performance was relatively flat compared to 1995, as the effect of
higher sales was offset by a $1.7 million increase in allocated corporate
overhead due to the 1995 pension gain noted above.
The Technologies Group's operating income in 1996 compared to 1995
increased to $24.5 million from $20.3 million. The results in 1995 were
negatively impacted by a $7.2 million amortization charge for Reorganization
Goodwill. Excluding the amortization of Reorganization Goodwill, the segment's
operating income decreased $3.0 million in 1996 compared to 1995, an 11%
decline, due to decreased operating margins and a $1.7 million increase in
allocated corporate overhead due to the 1995 pension gain noted above. The lower
operating margins were caused principally by competitive price pressure in the
connector market and delayed introductions of new connector products.
In 1996, the operating income of the Specialty Publishing business, Taylor
Publishing, improved to $1.7 million from an operating loss of $0.8 million in
1995 due principally to the reduction in amortization of Reorganization
Goodwill, which totaled $5.6 million in 1995. Excluding the amortization of
Reorganization Goodwill, the unit's operating performance decreased $3.2 million
in 1996 compared to 1995 due to a $1.5 million restructuring charge incurred in
1996, following Taylor's adoption of a restructuring plan to improve
profitability, a $1.1 million increase in allocated corporate overhead which was
primarily attributable to the 1995 pension gain noted above and increased
administrative costs.
Other Income (Expense)
Interest expense decreased approximately 6% or $1.2 million in 1996
compared to 1995 due to a lower effective interest rate and lower debt balances.
Other income included a favorable adjustment of $2.2 million related to the
Company's environmental liabilities following completion of a site clean-up for
an amount less than previously estimated. Other income for 1995 included
favorable adjustments of $3.6 million related to the Company's environmental
liabilities following a review of its liabilities from previously divested
operations and $1.5 million related to the resolutions of several legal
disputes. In addition, other income included a $4.0 million gain on the sale of
idle corporate assets.
Income Tax Expense
The Company's actual income tax obligations during 1996 ($2.4 million) and
1995 ($2.6 million) were substantially less than the total amount of income
taxes recognized ($12.4 million and $16.1 million respectively) because
previously generated net operating losses and other net deferred tax assets were
utilized to reduce the tax obligations. During 1996 and 1995, additional
deferred tax assets of $10.7 million and $9.2 million respectively, were
recognized and recorded on the balance sheet because it was concluded that it
was more likely than not that such amounts would be realized in future years. In
accordance with the Reorganization SOP, the tax benefits associated with the
recognition of pre-effective date deferred tax assets ($10.2 million and $1.6
million in 1996 and 1995, respectively), were recorded as an increase to
additional paid-in capital and $7.2 million in 1995 was recorded as a reduction
to Reorganization Goodwill. The 1995 reduction eliminated the remaining
unamortized Reorganization Goodwill.
Discontinued Operations
For information regarding the Company's reclassification of its Office
Products Business as a discontinued operation, see "1997 Compared to
1996--Discontinued Operations."
Liquidity and Capital Resources
Post-Mergers and Refinancing
The Company's principal sources of liquidity are cash flow from operations
and borrowings under the Existing Credit Facility or, if obtained, the New
Credit Facility. The Company's principal uses of cash are debt service
requirements, capital expenditures, acquisitions and working capital. The
Company expects that ongoing requirements for debt service, capital expenditures
and working capital will be funded from operating cash flow and borrowings under
the Existing Credit Facility or the New Credit Facility. In connection with
future acquisitions, the Company may require additional funding which may be
provided in the form of additional debt, equity financing or a combination
thereof. There can be no assurance that any such additional financing will be
available to the Company on acceptable terms.
The Company incurred substantial indebtedness in connection with the
Mergers and the Merger Financing and is incurring additional indebtedness in
connection with the Refinancing. On a pro forma basis, after giving effect to
the Merger, the Merger Financing and the Refinancing and the application of the
proceeds thereof, the Company would have had approximately $385.8 million of
indebtedness outstanding as of June 30, 1998 as compared to $264.8 million of
indebtedness outstanding as of June 30, 1998 on a historical basis. In addition,
on the same pro forma basis, the Company would have a stockholders' deficit of
$231.5 million at June 30, 1998 as compared to a stockholders' deficit of $90.8
million as of June 30, 1998 on a historical basis. The Company's significant
debt service obligations following the Mergers and the Refinancing could, under
certain circumstances have material consequences to security holders of the
Company. See "Risk Factors."
In connection with the Mergers, Holdings raised approximately $56.0 million
of equity capital through the issuance of 1,245,138 shares of Holdings Common
Stock, approximately $35.0 million through the issuance of the PIK Preferred
Stock and the DLJMB Warrants to purchase 65,603 shares of Holdings Common Stock
at an exercise price of $0.01 per share, and approximately $70.2 million
aggregate gross proceeds of the Holdings Units. In addition, the Company raised
approximately $43.1 million through additional borrowings under the Existing
Credit Facility.
The Company
The Senior Discount Notes were issued by Silkworm, became obligations of
Holdings following the Mergers and are not guaranteed by the Company or any of
its consolidated subsidiaries. The Senior Discount Notes will mature in 2008 and
will not require cash interest payments until 2003. See "Description of Certain
Indebtedness--Senior Discount Notes." The Senior Discount Notes contain
customary covenants and events of default, including covenants that limit the
ability of Holdings and its subsidiaries to incur debt, pay dividends and make
certain investments. Holdings believes that based upon its current level of
operations and anticipated growth, it will be necessary to refinance the Senior
Discount Notes upon their maturity.
The PIK Preferred Stock provides for cumulative dividends that do not
require payment in cash through 2003, but will be payable in cash thereafter and
will be mandatorily redeemable in 2010. The PIK Preferred Stock is exchangeable
into debentures that will contain customary covenants and events of default,
including covenants that limit the ability of Holdings and its subsidiaries to
incur debt, pay dividends and make certain investments. See "Description of
Capital Stock--PIK Preferred Stock."
Holdings is a holding company, and its ability to pay interest on the
Senior Discount Notes and dividends on the PIK Preferred Stock is dependent upon
the receipt of dividends from its direct and indirect subsidiaries, including
Insilco. Holdings does not have, and may not in the future have, any assets
other than shares of common stock of Insilco (which are pledged to secure the
obligations of Insilco under the Existing Credit Facility and are expected to be
pledged to secure any obligations under the New Credit Facility). Insilco and
its subsidiaries are parties to the Existing Credit Facility and are expected to
be parties to the New Credit Facility and Insilco is a party to the 10 1/4% Note
Indenture and the 12% Note Indenture, each of which imposes substantial
restrictions on Insilco's ability to pay dividends to Holdings. See "Risk
Factors--Limitations on Access to Cash Flow of Subsidiaries; Holding Company
Structure."
Insilco
The Existing Credit Facility consists of a $200.0 revolving credit
facility, which permits the issuance of up to $50.0 million of letters of
credit. Borrowings generally bear interest based on a margin over LIBOR or the
base rate. The applicable margin fluctuates based on Insilco's financial
performance. The Existing Credit Facility is guaranteed by all of Insilco's
wholly-owned domestic subsidiaries and is secured by substantially all of
Insilco's assets (other than assets of its foreign subsidiaries). The Existing
Credit Facility contains customary covenants and events of default.
See "Description of Certain Indebtedness--Existing Credit Facility."
Insilco has obtained a commitment letter from DLJ Capital Funding, Inc.
to provide Insilco with the New Credit Facility, the proceeds of which
would be used to refinance the Existing Credit Facility and, together with
the proceeds from the issuance of the 12% Notes, to repurchase the 10 1/4%
Notes. The commitment is subject to significant conditions including
negotiation of definitive documents and the absence of a material adverse
change, and there can be no assurance that the New Credit Facility will be
made available. See "Risk Factors--Potential Lack of Financing."
The Term Loan Facility under the New Credit Facility is expected to consist
of a $100.0 million term amortizing loan maturing in seven years. Scheduled
aggregate amortization is expected to be $1.0 million in 1999. The New Credit
Facility is also expected to include a $200.0 million Revolving Credit Facility
maturing on July 8, 2003 which will provide for revolving loans and up to $50.0
million in letters of credit. See "Description of Certain Indebtedness--New
Credit Facility."
Availability under the Revolving Credit Facility will decrease (i) on the
six month anniversary of the New Credit Facility closing date by an amount equal
to $46.0 million less the aggregate consideration paid in connection with
acquisitions or committed to be paid pursuant to a signed definitive acquisition
agreement entered into prior to such date and (ii) by $20.0 million on each of
July 10, 2000, July 10, 2001 and July 10, 2002.
Borrowings under the New Credit Facility are expected to generally bear
interest based on a margin over, at the Company's option, the base rate or the
LIBOR rate. The applicable margin is expected to be 1.5% for base rate revolving
borrowings and 2.25% for base rate term borrowings and 2.75% for LIBOR revolving
borrowings and 3.50% for LIBOR term borrowings for the first six months and
thereafter is expected to, in the case of revolving loans, vary based upon the
Company's ratio of total debt to EBITDA (as defined). Insilco's obligations
under the New Credit Facility are expected to be guaranteed by Holdings and all
material existing and future wholly-owned domestic subsidiaries of Insilco (the
"subsidiary guarantors") and are secured by substantially all of the assets of
Insilco and the subsidiary guarantors, including a pledge of the capital stock
of all existing and future subsidiaries of the Company (provided that no more
than 65% of the voting stock of any foreign subsidiary shall be pledged) and a
pledge by Holdings of the stock of Insilco. The New Credit Facility is expected
to contain customary covenants and events of default. See "Description of
Certain Indebtedness--New Credit Facility."
The 12% Notes and the 10 1/4% Notes will mature in 2007. Interest on the
12% Notes will be, and interest on the 10 1/4% Notes is, payable semiannually in
cash. The 12% Notes will contain and the 10 1/4% Notes contain customary
covenants and events of default, including covenants that limit Insilco's
ability to incur debt, pay dividends and make certain investments. See
"Description of Certain Indebtedness--10 1/4% Notes" and "12% Notes."
If Insilco is unable to enter into the New Credit Facility, it will
maintain the Existing Credit Facility and, subject to borrowing availability
under such facility, use proceeds of borrowings thereunder to purchase to 10
1/4% Notes. The total amount available to Insilco under the Existing Credit
Facility together with available cash should be sufficient for such purposes.
However, if all of the 10 1/4% Notes are repurchased, the Company anticipates
that it will have either no or very limited availability for borrowings
remaining under the Existing Credit Facility, which could adversely affect the
Company.
Insilco anticipates that its operating cash flow, together with
borrowings under the Existing Credit Facility or New Credit Facility, will be
sufficient to meet its anticipated future operating expenses, capital
expenditures and to service interest payments on its outstanding debt as they
become due. The Company's ability to make scheduled payments of interest on or
to refinance indebtedness and to satisfy other debt obligations will depend upon
the Company's future operating performance, which will be affected by general
economic, financial, competitive, legislative, regulatory, business and other
factors beyond its control. See "Risk Factors."
Historical
Cash Flows from (Used In) Operating Activities. Operations used $3.8
million cash in the first six months of 1998 as compared to a cash usage of $5.2
million in the first six months of 1997. Cash flows from operations improved
over the prior year period due to the timing of cash receipts and lower tax
payments. These improvements were partially offset by higher interest payments
related to the 10 1/4% Notes (which are payable semi-annually in the first and
third quarters.) The Company's cash flow for periods prior to the six months
ended June 30, 1997 was favorably impacted by tax loss carryforwards, which
reduced the actual cash payments for the years to well below the financial
statement income tax expense. The tax loss carryforwards were substantially
reduced in 1997 due to the gain from the sale of the Rolodex Business.
Operations provided $45.5 million in cash in 1997 compared to providing
$55.4 million in cash in 1996. Cash flows from operations decreased from the
prior year primarily due to cash flows from the divested Office Products
business included in 1996 results. The Company's cash for periods prior to 1997
was favorably impacted by tax loss carryforwards, which reduced the actual cash
payments for the years to well below the financial statement income tax expense.
The tax loss carryforwards were substantially reduced in 1997 due to the gain
from the sale of the Rolodex Business. As a result, beginning in 1998 it is
expected that the Company will no longer have any tax loss carryforwards
available to reduce cash payment obligations.
Cash Flows from (Used In) Investing Activities. In the first six months of
1997, the Company sold its Rolodex Business for a net sales price of $112.6
million. In the first six months of 1998 and 1997, the Company received dividend
distributions from Thermalex of $1.3 million and $1.5 million, respectively. The
Company's other investing activities consist principally of capital expenditures
which totaled $10.9 million and $10.3 million for the first six months of 1998
and 1997, respectively.
In 1997, in addition to the sale of the Rolodex Business, the Company
received a $1.5 million dividend distribution from Thermalex and $4.4 million
from the liquidation of idle assets in 1997. In 1996, the Company acquired the
Lingemann Business, and two affiliated businesses serving the automotive, heavy
truck and industrial manufacturing radiator replacement market, Great Lake and
Kar Tool Co. Inc., for approximately $37.7 million including transaction fees
and expenses. In 1996, the Company received proceeds totaling $21.8 million from
the sales of Curtis and Rolodex Electronics; $3.6 million from Thermalex for
full repayment of loans outstanding; a $3.4 million dividend distribution from
Thermalex; and $1.3 million from the disposal of idle assets. In 1995, the
Company received $2.5 million from Thermalex relating to the partial repayment
of loans, a $0.4 million dividend distribution from Thermalex and $4.7 million
from the disposal of idle assets.
The Company's capital expenditures totaled $23.6 million in 1997 and the
Company has budgeted expenditures totaling approximately $22.1 million in 1998,
of which $10.9 million was completed in the first six months of 1998. The
Company expects to finance these expenditures and investments with internally
generated funds. The Company does not anticipate that limitations on capital
expenditures under the Existing Credit Facility will adversely affect its
ability to meet its operating goals.
Cash Flows from (Used In) Financing Activities. Financing activities
provided $9.4 million and $7.8 million in the first six months of 1998 and 1997,
respectively. In the first six months of 1998, the Company borrowed a net amount
of $9.0 million on its revolving credit facility compared to borrowings of $15.3
million in 1997. Term loan payments of $5.6 million were made in the first six
months of 1997. In addition, the Company paid $1.6 million and $1.7 million of
prepetition liabilities in the first six months of 1998 and 1997, respectively.
On July 3, 1997, the Company refinanced its existing bank debt (see Note 8
to the Consolidated Financial Statements). In the third quarter of 1997, the
Company, using the proceeds from the sale of the Rolodex Business and the
proceeds received on the issuance of the 10 1/4% Notes, consummated the Share
Repurchase. On August 12, 1997, the Company issued $150 million of the 10 1/4%
Notes, for net proceeds of approximately $145.9 million.
The Company incurred $10.7 million in costs for the refinancing, Share
Repurchase and issuance of the 10 1/4% Notes. During 1996, the Company repaid
$22.8 million of its initial $155.0 million term loan. The Company also
repurchased an additional 97,500 shares of its common stock at prices ranging
from $30.60 to $36.125 per share under the Company's $15.0 million stock buyback
program. During 1995, the Company repaid $12.6 million of its initial $155.0
million term loan and repurchased 197,500 shares of its common stock at prices
ranging from $32.375 to $36.875 per share.
The interest expense requirements during the next five years will fluctuate
based on the outstanding debt balances as well as changes in interest rates. The
interest rate on bank borrowings bear interest at various fluctuating rates, at
the Company's option, which approximate the one to six month LIBOR rates plus
1.25% (such LIBOR rates approximated 5.72% to 5.84% at December 31, 1997)
subject to performance versus a leverage ratio. The Company reduces its exposure
to potential increases in interest rates by entering into forward rate, interest
rate cap and interest rate swap agreements with major financial institutions. A
summary of the terms of those agreements is contained in Note 9 to the
Consolidated Financial Statements.
Net Income (Loss) and Accumulated Equity (Deficit). At December 31, 1997,
the Company had a stockholders' deficit totaling $102.3 million compared to
stockholders' equity totaling $33.4 million at December 31, 1996. The deficit
was attributable to the effect of the Share Repurchase as described in "Cash
Flow From (Used In) Financing Activities" above.
Seasonality. The Company's yearbook publishing business, Taylor Publishing,
is highly seasonal, with a majority of sales occurring in the second and third
quarters of the year. Taylor receives significant customer advance deposits in
the second half of each year. The Company's other businesses are not highly
seasonal.
Impact of Inflation and Changing Prices. Inflation and changing prices have
not significantly affected the Company's operating results or markets. The
Company is generally able to pass through to its customers price changes in its
major steel, copper and aluminum based product lines.
Liquidity. At June 30, 1998, the Company's cash and cash equivalents and
net working capital amounted to $7.0 million and $64.2 million, respectively,
representing a decrease in cash equivalents of $3.7 million and an increase in
net working capital of $24.7 million from year end 1997. The borrowing ability
under the Company's revolving credit facility as of the end of the quarter was
$77.9 million, including $42.5 million available for letters of credit.
Trade receivables, net, at June 30, 1998 increased 27% or $17.9 million
over the December 31, 1997 amount primarily due to increased receivables at
Taylor Publishing following its peak yearbook production period (see
"--Seasonality").
At December 31, 1997, the Company's cash and cash equivalents and net
working capital amounted to $10.7 million and $39.5 million, respectively,
compared to $3.5 million and $51.4 million, respectively, in 1996. The borrowing
ability under the Company's revolving credit facility at December 31, 1997 was
$85.1 million, including $41.1 million available for additional letters of
credit. The Company believes it has adequate sources of liquidity to meet its
working capital, capital expenditures and debt service requirements for the
foreseeable future.
Year 2000 Compliance. The Company is currently in the process of evaluating
its information technology infrastructure for the year 2000 ("Year 2000")
compliance. The Company's primary information systems either have recently been
or are in process of being replaced with new systems to meet the Company's
growing capacity and performance requirements. These replacements are generally
expected to be completed by early 1999.
The Company does not expect that the cost to be Year 2000 compliant will be
material to its financial condition or results of operations. The costs are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ materially from those plans. The Company does not anticipate any material
disruption in its operations as a result of any failure by the Company to be in
compliance.
The Company does not currently have complete information concerning the
Year 2000 compliance status of its suppliers and customers. In the event that
any of the Company's significant suppliers or customers do not successfully and
timely achieve Year 2000 compliance, the Company's business or operations could
be adversely affected.
The Company has not incurred significant costs including internal costs to
evaluate the extent of compliance related to Year 2000 compliance prior to
December 31, 1997.
Foreign Sales. In 1997 the Company had export sales of $55.4 million which
represented 10% of total sales. Export sales in 1997 to Europe, Asia, Canada and
Mexico were $21.2 million, $14.0 million, $9.7 million and $4.3 million,
respectively. All other export sales in 1997 totaled $6.2 million. In 1996, the
Company had export sales of $58.2 million which were 12% of total sales. In
1995, export sales were $53.1 million or 12% of total sales. The Company's
transactions are primarily in U.S. dollars.
BUSINESS
Overview
The Company is a diversified producer of automotive, telecommunications and
electronics components, and is a leading specialty publisher of student
yearbooks. The Company has three reporting segments: (i) the Automotive
Components Group, which manufactures transmission components and assemblies and
heat exchangers (such as radiators and air conditioning condensers) and heat
exchanger tubing; (ii) the Technologies Group, which manufactures high
performance data-grade connectors for the telecommunications and networking
markets, cable and wire assemblies primarily for the telecommunications market,
and precision metal stampings and power transformers primarily for the
electronics market; and (iii) Specialty Publishing, a specialty publisher
focusing primarily on the student yearbook market. The Company's portfolio of
businesses serves several market segments, which the Company believes tends to
dampen cyclicality and diversify business risk. The Company's broad base of more
than 17,000 customers includes automotive and non-automotive OEMs,
telecommunications, networking and electronics companies and school yearbook
departments nationwide.
The Company's primary focus is to tailor its products for customer-specific
applications in niche markets. This strategy includes customizing products for
particular accounts and applications and developing technology to enhance
product function. The Company believes that this niche market focus results in
more stable revenues, higher margins and longer term, often sole-supplier,
customer relationships. From fiscal 1994 to the twelve month period ended June
30, 1998, the Company's net sales from continuing operations increased from
$438.4 million to $539.3 million, representing a CAGR of 6.1%, and Adjusted
EBITDA increased from $56.6 million to $70.0 million, representing a CAGR of
6.3%. See "Summary--Recent Developments" for a discussion of the Company's
results for the three- and nine-month periods ended September 30, 1998.
<TABLE>
<CAPTION>
Twelve Months ended
June 30, 1998
------------------------
Adjusted
Segment Sales EBITDA Principal Products/Markets Largest Customers
- ----------------------------- -------- -------- --------------------------------- -----------------
(in millions)
<S> <C> <C> <C> <C>
Automotive Components Group $238.5 $32.9 -- Transmission/suspension -- Ford
components -- Valeo
-- Radiators/air conditioning -- Caterpillar
condensors -- Behr
-- Heat exchanger tubing -- Delphi
Technologies Group 200.0 28.8 -- Cable harness assemblies -- Nortel
-- 50/60 Hz transformers -- Siemens
-- Modular jacks & plugs -- Littelfuse
-- Precision high speed stamping -- Ericsson
-- Lucent
-- IBM
Specialty Publishing 100.8 8.3 -- School yearbooks -- High Schools
------ -----
-- Universities
Total......................... $539.3 $70.0
====== =====
</TABLE>
The Automotive Components Group consists of three operating units--Thermal
Components, Steel Parts and Romac--and a joint venture, Thermalex. Thermal
Components produces aluminum- and copper-based heat exchanger tubing for
automotive OEMs and Tier 1 suppliers, and also manufactures radiators, air
conditioning condensers and other heat exchangers for automotive and industrial
applications. Steel Parts is the leading supplier of automatic transmission
clutch plates to Ford and produces other stamped components for OEMs and Tier 1
suppliers. Romac produces stainless steel tubing for marine, architectural,
industrial and automotive applications. Thermalex, a joint venture owned equally
by the Company and Mitsubishi Aluminum, is, management believes, the nation's
leading producer of precision extruded multi-port aluminum heat exchanger tubing
used in automotive air-conditioning condensers. In 1997, Thermalex, which is
accounted for as an unconsolidated investment, contributed $2.6 million to the
Company's consolidated pre-tax income and paid a $1.5 million cash dividend to
the Company. On a stand-alone basis, Thermalex generated $10.3 million of EBITDA
in 1997; however, only the $1.5 million dividend is included in the Company's
Adjusted EBITDA. Management believes that the impact of the automotive cycle on
the Automotive Components Group's financial performance is mitigated by sales to
the automotive aftermarket and non-automotive OEMs, which represented 16% and
27%, respectively, of the Automotive Components Group's 1997 net sales.
The Technologies Group generally focuses on niche products which are
designed for specific customer applications and seeks to supply all or a
substantial portion of its customers' requirements. The group has four operating
units: Escod Industries, a supplier of cable and wire assemblies to the
telecommunications market, including Northern Telecom and Siemens Telecom
Network; Stewart Connector, a producer of high performance data-grade connectors
for the computer networking and telecommunications markets; Stewart Stamping, a
producer of highly customized precision stamped metal parts, primarily for the
electronics industry; and Signal Transformer, a producer of 50-60 Hz power
transformers used in a variety of product applications.
Specialty Publishing consists of Taylor, one of the nation's leading
publishers of student yearbooks. The Company believes that Taylor was the first
major yearbook publisher to make extensive use of digital pre-press technology
as opposed to the more widely used pre-press process which involves manual
cutting, pasting and rescaling. The Company believes it uses digital pre-press
technology more extensively than its competitors, which offers yearbook
departments greater flexibility in altering page design and superior quality.
The student yearbook business benefits from very limited cyclicality, low
customer turnover and pre-paid sales.
Business Segments
Automotive Components Group
The Automotive Components Group is made up of three operating units,
Thermal Components, Romac and Steel Parts. The businesses in this segment
manufacture automotive heat exchangers and related tubing, stainless steel
tubing, and automatic transmission and suspension components, respectively. The
Automotive Components Group accounted for 43.7% of the Company's total sales in
1997, or approximately $231 million.
Automotive Sales by Market Segment
1997
----
Automotive OEM........................................ 45.9%
Other OEM............................................. 27.2
Automotive Aftermarket................................ 16.2
Other................................................. 10.7
-----
Total................................................. 100.0%
=====
Tubing and Heat Transfer. Thermal Components is a vertically integrated
manufacturer of heat exchangers for the automotive, specialty vehicle, truck,
heavy equipment and off-road vehicle and industrial equipment markets. Its
products include thin wall aluminum and copper tubes used principally in heat
transfer applications, radiators, air conditioning condensers, oil coolers and
heaters and production machinery and equipment used in the manufacture and
assembly of automotive heat exchangers.
Thermal Components uses a direct sales force and independent sales
representatives to market its products. Thermal Components sells to both OEMs
and aftermarket customers.
Thermalex, the Company's joint venture with Mitsubishi Aluminum,
manufactures multiport aluminum extrusions used principally in automotive air
conditioning condensers.
The markets for automobile heat-exchanger products are highly competitive
and have many participants, particularly automobile OEMs that produce for their
own use and several large independent manufacturers. Thermal supplies tubes and,
through Thermalex, extrusions to domestic automobile OEMs and independent
manufacturers. Thermal is an established supplier of welded radiator tubes to
manufacturers and repair shops in the heat-exchanger aftermarket.
Thermal has manufacturing facilities in Alabama, Michigan, New York, South
Carolina, Wisconsin and Germany. At December 31, 1997, Thermal (excluding
Thermalex) had 936 employees.
Transmission Components. Steel Parts manufactures automotive parts
consisting of close-tolerance precision metal stampings at its facility in
Indiana. Its products include clutch plates for automatic transmissions,
suspension parts for vibration-reducing assemblies and engine mounts.
Substantially all Steel Parts' sales are made to the domestic automobile
industry, either directly or indirectly through other independent automotive
parts suppliers. As a result, the demand for Steel Parts' products historically
has been heavily dependent on the level of new car production by the domestic
automobile industry. Steel Parts has also seen its production content per
automobile increase in recent years as automobile manufacturers have moved from
three-speed to four- and five-speed automatic transmissions. The strong domestic
automotive market resulted in Steel Parts operating at or near capacity for most
of 1997 and 1996.
The market for original equipment automobile parts is competitive and has
many participants, principally the automobile manufacturers themselves because
of their ability to make their own parts. Approximately 70%, 70% and 67% of
Steel Parts' sales were to one of the "Big 3" domestic automotive manufacturers
in 1997, 1996 and 1995, respectively.
At December 31, 1997, Steel Parts had 383 employees.
Stainless Steel Tubing. Romac manufactures stainless steel tubing for a
variety of marine, architectural, automotive and decorative applications at its
facility in North Carolina. Substantially all of its sales are domestic.
The markets for these products are highly competitive. Competition is based
principally on price and, to a lesser extent, on the shapes and finishes that
can be achieved with the tubing. At December 31, 1997, Romac had 129 employees.
Technologies Group
The Technologies Group consists of four operating units, Stewart Connector,
Signal Transformer, Stewart Stamping and Escod Industries, which manufacture
telecommunication and electrical component products for the computer networking,
telephone digital switching, premises wiring, main frame computer, automotive
and medical equipment markets. The Technologies Group accounted for 37.7% of the
Company's total sales in 1997, or approximately $198.9 million.
Specialized Connector Systems. Stewart Connector designs and manufactures
specialized high speed data connector systems, including modular plugs, modular
jacks, shielded and nonshielded specialized connectors, and cable assemblies for
telecommunications, cellular communications and data transmission, including
local and wide area networks. Its primary manufacturing facility is located in
Pennsylvania, with an assembly operation in Mexico.
Stewart Connector sells its products throughout the world, directly and
through sales subsidiaries, and through a network of manufacturers'
representatives. Foreign sales accounted for approximately 41%, 40% and 43% of
Stewart Connector's sales in 1997, 1996 and 1995, respectively. It maintains
direct sales offices (and to a lesser extent, distribution operations) in
England, Japan and Germany and has numerous domestic and foreign competitors,
some of which are substantially larger than Stewart Connector. Competition is
based principally on price with respect to older product lines, and on
technology and product features for newer products and to a lesser extent,
patent protection.
At December 31, 1997, Stewart Connector had 796 employees, of which 372
were employed in the U.S., 20 in Japan, 7 in Germany, 4 in the United Kingdom,
and 393 in Mexico.
Power Transformers. Signal Transformer manufactures both standard
"off-the-shelf" and custom-made power transformers serving a broad customer base
in a variety of industries. Signal's markets include telecommunications, home
and retail security systems, medical instrumentation, gaming and entertainment
and process controls. Signal markets its products directly, utilizing catalogs
and print advertising, and indirectly through selective independent sales
representatives in targeted regions of the country. It has a customer base of
over nine thousand accounts, consisting of both OEMs and aftermarket resellers.
The electronic transformer industry includes both domestic and foreign
manufacturers and there are numerous competitors to Signal. Competition is based
on price and availability of product to meet customers' needs. Signal has
directed its marketing efforts for many years towards engineers and other
customers having specialized, low-volume demand and prompt delivery
requirements. To capitalize on an identified market niche, Signal has a service
that guarantees 24 hour delivery for small order quantities of certain
off-the-shelf transformers.
Signal manufactures its transformers at production facilities located in
the Dominican Republic, Puerto Rico and New York. The New York facility also
serves as Signal's major sales, administration and distribution center.
At December 31, 1997, Signal had 645 employees, of which 153 were employed
in the U.S., 250 in the Dominican Republic and 242 in Puerto Rico.
Precision Stampings and Wireforms. Stewart Stamping is a tool designer and
subcontract manufacturer of precision stampings and wireformed parts. Stewart
Stamping manufactures components used in electrical devices, such as circuit
breakers, electric fuses, lighting and process controls, and in electronic
industries, including passive components such as capacitor cans and connector
contacts. Stewart Stamping sells its products to a broad customer base primarily
in the U.S. through a network of manufacturers representatives. Stewart Stamping
manufactures its products at its plant in Yonkers, New York. In early 1997,
Stewart Stamping leased a manufacturing facility in El Paso, Texas to better
serve the Southwestern U.S. and Mexican assembly operations of telecommunication
and electronics customers.
Stewart Stamping's competitors in each of its product lines are numerous
(including, in the case of metal stampings, its own customers), but Stewart
Stamping traditionally has focused on products that, because of the engineering
and manufacturing capability required to produce them, have the potential for
repeat business.
At December 31, 1997, Stewart Stamping had 320 employees.
Cable and Wire Assemblies. Escod Industries produces electronic cable
assemblies, specialized wire harnesses and certain telecommunication equipment
subassemblies for sale to manufacturers of telecommunications, computer and
other electronics equipment. Escod's markets generally are regional in nature,
and Escod's production facilities (three in the Carolinas and one in Florida)
are operated principally to serve local plants of OEMs. Because substantially
all of Escod's customers are OEMs having a number of production facilities, the
demand for Escod's products depends not only on the demand for its customers'
products, but also on its customers' varying utilization of their production
sites.
Telecommunications and computer OEMs account for the bulk of Escod's sales.
Two telecommunications OEMs together accounted for approximately 68%, 66% and
60% of Escod's total revenues in 1997, 1996 and 1995, respectively. Escod's
dependence on these two major customers makes its revenues and operating income
sensitive to changes in demand from those customers. Beginning in 1995, Escod
has focused its efforts on developing a broader customer base and a broader
product line.
Competition in Escod's markets is based primarily on price and, to a lesser
extent, on responsiveness to customers' needs. The profitability of Escod's
sales generally depend on the relative raw material content, labor productivity,
quality of the products sold, proximity to customers and timeliness of delivery.
As a result of the low barriers to entry into Escod's business and
increased, low-cost foreign competition in recent years, Escod's business has
become highly competitive.
At December 31, 1997, Escod had 798 employees.
Specialty Publishing
Taylor Publishing Company is engaged primarily in the contract design and
printing of student yearbooks from which it derived at least 87% of its revenues
in each of the last three years. Specialty Publishing accounted for 18.6% of the
Company's total sales in 1997, or approximately $98.2 million. Its principal
yearbook customers are secondary (middle and senior high) schools. Other
yearbook customers include elementary schools, colleges and academies. Taylor
also publishes a variety of specialty books on a contract basis and a limited
number of its own publishing titles and provides reunion planning and other
services for alumni of schools, colleges and academies.
Competition in the yearbook industry is based upon customer service,
quality and price. The market for yearbooks is affected more by demographic
trends, which are expected to be favorable, than by business cycles. Taylor
offers several yearbook lines with different graphic and typographic options and
capabilities. Taylor has expended significant resources in recent years to
develop a system of electronic copy preparation designed to enhance the quality
and consistency of photographs, reduce production costs and shorten the time
required for yearbook production. Taylor has developed proprietary software
programs for use by its customers in developing yearbooks. This software
facilitates the yearbook design work performed by schools and improves the
overall production process.
Taylor markets its yearbook services through commissioned independent sales
representatives who maintain contact with yearbook faculty advisors, school
principals and other key purchasing personnel. It also trains students and their
advisors in layout, design and marketing, conducts seminars and workshops and
provides supporting materials, including software, to assist student yearbook
staffs in the production process.
Yearbook production is highly seasonal. Orders are normally obtained in the
fall and finished yearbooks are delivered at or near the end of the school year,
typically late spring to early summer and to a lesser degree, in the fall of the
following school year. Deposits representing approximately 25% of the yearbook
contract price are due from the yearbook customer upon its submission of the
first set of yearbook pages.
Given the seasonal production cycle, the Company typically receives
significant cash deposits in the second half of each calendar year. These
deposits are available to fund the working capital requirements of the yearbook
production cycle, and to a lesser extent, to provide the Company working capital
for general corporate purposes.
Taylor operates six production facilities in Texas (two owned and four
leased) and one leased production facility in Pennsylvania. Its work force
reflects the seasonality of its business, typically ranging from 1,000 to 1,700
full-time employees. At December 31, 1997, it had 168 salaried and 1,194 hourly
employees.
Divested Office Products Businesses. On September 3, 1996, the Company sold
Curtis, its computer accessories business. On October 4, 1996, the Company sold
Rolodex Electronics, consisting of electronic personal organizers and
telephones. On March 5, 1997, the Company sold the Rolodex Business, which
comprised the Rolodex office products line. As a result, the Office Products
Business has been accounted for as a discontinued operation.
Corporate History
The Company has undergone significant change and restructuring in the past
five years. A review of the most significant developments follows, in
chronological order:
o On April 1, 1993, the Company emerged from Chapter 11 bankruptcy
proceedings pursuant to the Plan of Reorganization. The Plan of
Reorganization resulted in a reduction in the Company's liabilities by
$532.3 million, an extraordinary gain realized in 1993 of $448.3
million attributable to the discharge of such liabilities, and a
change in control of the Company.
The Plan of Reorganization among other matters provided for: (i) the
issuance of 9,230,839 shares of the Company's common stock in exchange
for allowed unsecured claims; (ii) deferred payment of certain
pre-petition claims, including various state and Federal taxes and
trade debt; and (iii) provisions to issue additional stock to other
unsecured creditors over time at the pre-determined rate of 18 shares
of stock per $1,000 of allowed claim as those claims are determined.
Settlements were reached in 1997 on all remaining claims pending in
the Bankruptcy Court and the Chapter 11 cases were closed on June 12,
1997.
o In 1994, the Company sold its paint products segment for $50.8
million, and entered into a long-term $285 million credit facility
that allowed it to retire the Company's outstanding 103/8% Senior
Secured Guaranteed Notes due July 1, 1997 and 9 1/2% Notes due 1997.
o In 1996, the Company acquired, for an aggregate purchase price of
approximately $37 million, Great Lake, an aftermarket automotive,
heavy truck and industrial radiator manufacturer, and the Lingemann
Business.
o The Company divested the office products business of the Company's
Office Products/Specialty Publishing Group in three separate
transactions during 1996 and the first quarter of 1997. The 1996
transactions included the divestitures of Curtis and Rolodex
Electronics for an aggregate $21.8 million. On March 5, 1997, the
Rolodex Business was sold for net cash proceeds of approximately $112
million.
o Following the sale of the Rolodex Business, the Company refinanced its
existing debt by entering into the Existing Credit Facility.
o In the third quarter of 1997, the Company, using the proceeds from the
sale of the Rolodex Business and the proceeds received on the issuance
of the 10 1/4% Notes, consummated the Share Repurchase.
Patents and Trademarks
The Company holds patents or trademarks in most of its businesses which
have expiration dates ranging from 1998 to 2018. The Company expects to maintain
such patents and to renew the trademarks important to its business prior to
their expiration and does not believe the expiration of any one of its patents
will have material adverse effect on any of its businesses.
Raw Materials and Supplies
The principal raw materials and supplies used by the Company include: (i)
steel, aluminum, copper, zinc, brass and nickel (Automotive Components Group);
(ii) copper wire, steel, brass, aluminum, plastics, ceramics and precious metals
(Technologies Group); and (iii) paper, film and other photographic and printing
supplies (Specialty Publishing). The Company purchases these materials and
supplies on the open market to meet its current requirements and believes its
sources of supply are adequate for its needs.
Backlog
The Company's backlog by industry segment, believed to be firm, at June 30,
1997 and 1998 follows:
<TABLE>
<CAPTION>
June 30,
-----------------------
1997 1998
--------- --------
(in millions)
<S> <C> <C>
Automotive Components Group......... $ 56.1 $ 64.7
Technologies Group.................. 52.5 49.4
Specialty Publishing Group.......... 93.6 89.9
------ ------
Total.............................. $202.2 $204.0
====== ======
</TABLE>
Management believes that approximately $128.7 million of its June 1998
backlog will be filled in 1998, and the remainder in 1999. Of the 1998 backlog,
$61.2 million represents post-1998 orders placed with Specialty Publishing,
which often receives early renewals of contracts.
Properties
As of June 30, 1998, the Company operated 36 facilities throughout the
United States and seven facilities internationally consisting of approximately
2.1 million square feet. Seventeen of these 43 facilities (consisting of
approximately 1.6 million square feet) are owned by the Company. Management
believes that the Company's facilities generally are well maintained and
adequate for the purposes of which they are used.
Substantially all of the Company's material domestic assets, including
owned properties, are subject to liens and encumbrances to secure the Company's
obligations under the Existing Credit Facility.
Employees and Labor Relations
At December 31, 1997, the Company employed approximately 5,418 people on a
full-time basis, of whom approximately 25% were covered by collective bargaining
agreements with various unions. The largest collective bargaining unit (at
Taylor) covers approximately 563 employees. Taylor entered into a new contract
with this unit in early 1998. The Company considers relations with its employees
to be good.
The Company has defined benefit and defined contribution pension plans
covering substantially all employees. For information respecting defined benefit
pension plans, see Note 12 to the Consolidated Financial Statements.
Environmental Regulation and Proceedings
Environmental Matters
The Company's manufacturing operations involve the generation of a variety
of waste materials and are subject to extensive federal, state and local
environmental laws and regulations. The waste materials generated include metal
scrap from stamping operations, cutting and cooling oils, degreasing agents,
chemicals from plating and tinning operations, etching acids and photographic
and printing chemicals. The Company uses offsite disposal facilities owned by
others to dispose of its wastes and does not store wastes it generates to the
extent such storage would require a permit. The Company does not treat, store or
dispose of waste for others. The Company is required to obtain permits to
operate various of its facilities, and these permits generally are subject to
revocation or modification.
The Company has taken significant measures to address emissions, discharges
and waste generation and disposal; improve management practices and operations
in response to legal requirements; and internally audit compliance with
applicable environmental regulations and approved practices. These measures
include: raw material and process substitution; recycling and material
management programs; periodic review of hazardous waste storage and disposal
practices; and reviewing the compliance and financial status and management
practices of its offsite third-party waste management firms.
As a result of the Company's reorganization, much uncertainty has been
removed concerning the Company's potential liability for environmental
contamination at sites owned or operated by the Company (and at third party
disposal and waste management facilities used by the Company) prior to the
filing of its bankruptcy petition. During the reorganization, the Company
settled all claims of the United States relating to the Company's pre-Petition
Date conduct at previously owned or third party sites arising under the federal
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"). This settlement (i) discharged the Company's liability to the United
States at a number of hazardous waste sites; (ii) protects the Company from
contribution claims of the remaining potentially responsible parties; (iii)
limits the amount the Company may be required to pay the United States in any
one year on pre-petition claims; and (iv) provides that any such payment may be
made in cash or, at the Company's option, common stock valued at 30% of the
allowed claim.
The Company is also currently engaged in clean up programs at sites located
in Newtown, Connecticut, Mount Vernon, New York and Oak Creek, Wisconsin, and
may in the future be required to engage in investigations or cleanups at other
presently or previously owned and operated sites. The Company has established
what it believes are appropriate reserves for anticipated remedial obligations.
Due to the establishment of these reserves and the environmental settlements
reached during the Company's reorganization, based on currently available
information, management does not believe that environmental compliance or
remedial requirements are likely to have a material adverse effect on the
Company.
Legal Proceedings
On January 14, 1997 Taylor sued one of its principal competitors in the
yearbook business, Jostens, in the U.S. District Court for the Eastern District
of Texas, alleging violations of the federal antitrust laws as well as various
claims arising under state law. On May 13, 1998 the jury in the case returned a
verdict in favor of Taylor and on June 12, 1998, the judge presiding over the
litigation in the U.S. District Court rendered his judgment in the amount of
$25.225 million plus interest at the rate of 5.434 percent per annum. Jostens
has announced that it will seek to overturn the judgment in post trial motions
or on appeal. There can be no assurances as to the actual amount, if any, that
Taylor will recover from Jostens.
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of its business. The Company
maintains insurance coverage against potential general liability and certain
other claims in an amount it believes to be adequate. In the Company's opinion,
the outcome of these matters will not have a material adverse effect on the
Company's financial condition, liquidity or results of operations.
MANAGEMENT
The following table sets forth the name, age and position with Holdings of
each person who is a director or executive officer of Holdings.
<TABLE>
Name Age Position
<S> <C> <C>
Robert L. Smialek...... 54 Chairman of the Board, President and Chief
Executive Officer
David A. Kauer......... 43 Vice President and Chief Financial Officer
Kenneth H. Koch........ 43 Vice President, General Counsel and Secretary
Leslie G. Jacobs....... 48 Vice President, Human Resources and Assistant
Secretary
Michael R. Elia........ 40 Vice President and Controller
Thompson Dean.......... 40 Director
William F. Dawson, Jr.. 34 Director
David Y. Howe.......... 34 Director
Randall E. Curran...... 43 Director
</TABLE>
Robert L. Smialek has served as Chairman of the Board, President and Chief
Executive Officer of the Company since May 1, 1993. From October 1992 to May
1993, Mr. Smialek served as the President and Chief Operating Officer of the
Temperature and Appliance Controls Group of Siebe plc, a global controls and
engineering firm. From September 1990 to October 1992, Mr. Smialek served as
President and Chief Operating Officer of Ranco, Inc., a subsidiary of Siebe,
Inc. Mr. Smialek is a director of General Cable Corporation and Gleason
Corporation.
David A. Kauer has been Vice President and Chief Financial Officer since
May 1998, Vice President and Treasurer from April 1997 to May 1998 and Treasurer
from September 1993 to April 1997. Previously, Mr. Kauer was the Controller and
Treasurer of Johnson Yokogawa Corporation (a joint venture of Yokogawa Electric
Corporation and Johnson Controls, Inc.) from October 1989 to September 1993.
Kenneth H. Koch has been Vice President, General Counsel and Secretary
since October 1993. Prior thereto, Mr. Koch was a partner with the law firm of
Porter, Wright, Morris & Arthur.
Leslie G. Jacobs has been Vice President, Human Resources since August 1993
and was Director of Human Resources from January 1990 to August 1993. Prior
thereto, Mr. Jacobs was Director, Compensation and Employee Programs, of
Rockwell International.
Michael R. Elia has been Vice President and Controller since August 1998.
Prior thereto, Mr. Elia was Chief Financial Officer of Jordan Telecommunication
Products and from 1994 to 1997, he was Director of Strategic Planning for
Fieldcrest Cannon, Inc. From 1983 to 1994, Mr. Elia held senior financial
positions with Insilco's Technologies Group.
Thompson Dean has been the Managing Partner of DLJMB Inc. since November
1996. Prior thereto, Mr. Dean was a Managing Director of DLJMB Inc. (and its
predecessor). Mr. Dean serves as a director of Commvault Inc., Von Hoffman
Corporation, Manufacturers' Services Limited, Phase Metrics, Inc., and Arcade
Holding Corporation.
William F. Dawson, Jr. has been a Principal of DLJMB Inc. since August
1997. From December 1995 to August 1997, he was a Senior Vice President in DLJ's
High Yield Capital Markets Group. Prior thereto, Mr. Dawson was a Vice President
in the Leveraged Finance Group within DLJ's Investment Banking Group. Mr. Dawson
serves as a director of Von Hoffman Corporation and Thermadyne Holdings
Corporation.
David Y. Howe has been a Vice President of Citicorp Venture Capital, Ltd.
since 1993. Mr. Howe serves as a director of Aetna Industries, Inc., American
Italian Pasta Company, IPC Information Systems, Inc, and Pen-Tab Industries,
Inc.
Randall E. Curran has been a Director, Chairman of the Board, President and
Chief Executive Officer of Thermadyne LLC since May 1998. Mr. Curran has also
served as a Director of Thermadyne Holdings since February 1994 and was elected
Chairman of the Board and Chief Executive Officer of Thermadyne Holdings in
February 1995, having previously served as President of Thermadyne Holdings
since August 1994 and as Executive Vice President and Chief Operating Officer of
Thermadyne Holdings since February 1994. He also serves as President of
Thermadyne Industries, Inc., a position he has held since 1992. From 1986 to
1992, Mr. Curran was Chief Financial Officer of Thermadyne Holdings and/or its
predecessors. Prior to 1986, Mr. Curran held various executive positions with
Cooper Industries, Inc.
EXECUTIVE COMPENSATION
The aggregate remuneration of the Chief Executive Officer during 1997 and
the three other most highly compensated executive officers of the Company who
serve as officers of Holdings and whose salary and bonus exceeded $100,000 for
the fiscal year ended December 31, 1997, is set forth in the following table:
Summary Compensation Table
<TABLE>
<CAPTION>
Restricted Securities
Stock Underlying All other
Name and Principal Position Year Salary ($) Bonus ($) Award(s) ($) Options (#) Compensation ($)(1)
<S> <C> <C> <C> <C> <C> <C>
Robert L. Smialek, President and
CEO.............................. 1997 $550,000 $300,000 -- -- $9,901
1996 537,499 235,000 -- -- 13,251
1995 500,000 180,000 -- -- 13,817
David A. Kauer, Vice President
and Chief Financial Officer...... 1997 164,000 80,000 -- 10,000 3,369
1996 143,917 58,000 -- 1,500 3,109
1995 130,833 40,000 -- -- 2,447
Kenneth H. Koch, Vice President,
General Counsel and Secretary.... 1997 162,833 75,000 -- 10,000 3,314
1996 151,167 78,373 -- 2,500 3,114
1995 138,667 50,000 -- -- 2,693
Leslie G. Jacobs, Vice President,
Human Resources and Assistant
Secretary........................ 1997 165,000 70,000 -- 10,000 4,031
1996 155,833 62,500 -- -- 3,762
1995 147,500 50,000 -- -- 2,629
</TABLE>
(1) Includes employer contributions under the Company's Employee Thrift Plan
401(k) (the "Thrift Plan") and insurance premiums paid by the Company.
Stock Options
The following table shows information regarding Options to purchase shares
of the Company's Common Stock granted to executive officers named in the summary
compensation table in 1997 under the 1993 Long-Term Incentive Plan. All of these
Options were canceled in the Mergers in exchange for the Option Cash Payments,
except to the extent the holder thereof participated in the Management Rollover
described under "--Employee and Severance Benefits Agreements."
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
----------------------------------------------------------------------------------------------------------
Potential Realizable Value at Assumed
Annual Rates of Stock Price Appreciation
For Option Term (1)
--------------------------------------------
% of Total
Options
Granted to Exercise
Options Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Share) Date 0%($) 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C> <C>
Robert L. Smialek. -- -- -- -- -- -- --
David A. Kauer.... 10,000 6.6 36.75 6/25/02 0 101,533 224,362
Kenneth H. Koch... 10,000 6.6 36.75 6/25/02 0 101,533 224,362
Leslie G. Jacobs.. 10,000 6.6 36.75 6/25/02 0 101,533 224,362
</TABLE>
(1) The amounts under the columns labeled "5%($)" and "10%($)" are included by
the Company pursuant to certain rules promulgated by the Securities and
Exchange Commission and are not intended to forecast future appreciation,
if any, in the price of the Company's Common Stock. Such amounts are based
on the assumption that the Option holders hold the options granted for
their full term. The actual value of the Options will vary in accordance
with the market price of the Company's Common Stock. The column headed
"0%($)" is included to illustrate that the Options were granted at fair
market value and Option holders will not recognize any gain without an
increase in the stock price, which increase benefits all shareholders
commensurately.
The following table provides certain information regarding the number and
the value of Options exercised during 1997 and the value of the Options held by
the executive officers named in the summary compensation table at fiscal year
end.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-The-
Options at Fiscal Year-End Money Options at Year-End
(#) ($)(2)
---------------------------- ---------------------------------
Shares
Acquired on Value Realized
Name Exercise (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Robert L. Smialek. 160,000 $3,460,000 160,000 80,000 $480,000 $760,000
David A. Kauer.... 5,000 111,875 10,500 11,000 105,000 0
Kenneth H. Koch... 7,500 167,813 10,332 11,668 96,000 0
Leslie G. Jacobs.. 9,524 221,433 12,142 13,334 113,568 0
</TABLE>
(1) Value realized represents the difference between the exercise price of the
Option shares and the market price of the Option shares on the date the
Option was exercised. The value realized was determined without
consideration for any taxes or brokerage expenses which may have been owed.
(2) Represents the total gain which would be realized if all in-the-money
Options held at year end were exercised, determined by multiplying the
number of shares underlying the Options by the difference between the per
share Option exercise price and per share fair market value of $33.00 on
December 31, 1997.
Employee and Severance Benefit Agreements
The following is a description of the current employment agreements with
certain of the Company's executive officers.
The Company employs Mr. Smialek under an agreement providing that Mr.
Smialek will serve indefinitely as President and Chief Executive Officer of the
Company. Under the agreement, Mr. Smialek receives an annual base salary of
$550,000. Mr. Smialek will be eligible to receive annual bonuses and salary
increases in such amounts as may be reasonably determined by the Compensation
Committee. Mr. Smialek received an annual bonus for 1997 in the amount of
$300,000. Mr. Smialek also is entitled to participate in all incentive, savings,
retirement and welfare benefit plans and arrangements in which certain other
senior executive officers are eligible to participate, other than any restricted
stock or option plans in which his participation will be at the discretion of
the Company.
If Mr. Smialek's employment is terminated by the Company without "Cause" or
by Mr. Smialek for "Good Reason" (as the quoted terms are used in the
agreement), he will be entitled to a lump sum amount equal to his accrued
salary, annual bonus and vacation pay and any compensation previously deferred
by him (collectively, the "Accrued Obligations") as well as a severance payment
equal to his annual salary plus the greater of $150,000 or his most currently
determined annual bonus, together with the continuation of certain benefits for
a one-year period.
In 1993, Mr. Smialek purchased from the Company 33,333 restricted shares of
common stock issued under the Plan at a cash purchase price per share of $15,
whereupon 66,667 restricted shares were awarded to him under the Plan for a
nominal price (all of such restricted shares are referred to collectively herein
as the "Restricted Shares"). Restrictions on the Restricted Shares expired March
31, 1996, and Mr. Smialek has all the rights of a holder of common stock with
respect to such shares. Mr. Smialek has the option to settle the tax withholding
obligations of the Company resulting from expiration of the restrictions with
shares of common stock.
In December 1996, the Company entered into a Value Appreciation Agreement
(as amended, the "Value Appreciation Agreement") with Messrs. Kauer, Koch,
Jacobs and certain other officers. The Value Appreciation Agreement provided
that the executives would be entitled to receive a commission from the Company
following a transaction giving rise to a change in control. Upon consummation of
the Mergers, a commission was paid to the executives on account of the sale in
the amount of $2.6 million and the Value Appreciation Agreement terminated.
Holders of Options and persons entitled to payments under the Value
Appreciation Agreement invested an aggregate of approximately $5 million to
receive (i) phantom equity awards in lieu of the cash amounts otherwise payable
in respect of such Options or the Value Appreciation Agreement or with the
proceeds of a loan extended by the Company and (ii) shares of common stock of
Holdings purchased for cash (collectively, the "Management Rollover"). The
Company filed a registration statement on Form S-8 with respect to the
securities issued in the Management Rollover. The shares of Holdings
Common Stock were sold to such persons at a purchase price of $45 per
share. Holders of such common stock are not permitted to transfer it until
(i) sixty days after they are terminated from the Company or (ii) a
Significant Event (as defined) occurs. Upon the occurrence of any
Significant Event prior to August 17, 2008, or the person's termination,
the Company has a right to purchase from such person, and the holder has a
right to sell to the Company, the Holdings Common Stock at a price equal to
the common stock's Fair Market Value (as defined) thereof or, if such
holder was terminated for Cause (as defined), at the lesser of $45 and the
Fair Market Value. The phantom equity awards, which are not transferable,
were granted pursuant to an Equity Unit Plan that is governed by a
committee of the Board of Directors of the Company. Holders of the phantom
equity units purchased them for a price equal to their Fair Market Value
(which may be paid in cash, the termination of options or the foregoing of
future salary and bonus payments). Such equity units are cancelled upon
the occurrence of a Significant Event or the holder's termination from the
Company, at which time the holder will receive a payment equal to the Fair
Market Value of the equity units or, if such holder was terminated for
Cause (as defined), a payment equal to the lesser of $45 and the Fair
Market Value (which amount may be paid, at the committee's discretion,
either in cash or shares of Holdings Common Stock).
In December 1996, the Company entered into Income Protection Agreements
with Messrs. Kauer, Koch, Jacobs and certain other officers. The Income
Protection Agreements provide that in the event of termination of an executive's
employment by the Company without cause, or, in certain circumstances, by the
executive, the executive will be entitled to receive certain severance benefits.
The benefits payable to the executive in the event of a termination of
employment covered by the Income Protection Agreement are as follows: (i) one
year's base salary; (ii) a bonus equal to the bonus paid to executive in 1996 or
the target bonus for the year in which employment is terminated, as well as a
pro rated bonus for the year in which the termination occurs; (iii) continued
participation in the Company's benefit plans for the duration of the severance
period; (iv) accelerated vesting of all stock options and stock appreciation
rights; (v) continuation of any rights to indemnification from the Company; and
(vi) certain outplacement services. The Income Protection Agreements have three
year terms and automatically renew for subsequent one year terms, unless
terminated by either party.
Director Compensation. In 1993, the Company adopted the 1993 Nonemployee
Director Stock Incentive Plan covering 360,000 shares of Common Stock for
nonemployee directors in lieu of paying annual or other directors' fees. The
terms of the options and the restricted stock awards, including forfeiture
provisions, generally are the same as those described under "Employee and
Severance Benefit Agreements" respecting the options and restricted stock
awarded Mr. Smialek.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the common stock of Holdings as of October 30, 1998 by
(i) any person or group who beneficially owns more than five percent of the
common stock of Holdings and (ii) all directors and officers as a group.
<TABLE>
Shares Beneficially Percentage of
Owned After the Outstanding
Name and Address of Beneficial Owner: Mergers Common Stock(3)
- ------------------------------------- ----------------- ---------------
<S> <C> <C>
DLJ Merchant Banking Partners II, L.P. and related investors(1)(2)............. 1,043,584 70.8%
399 Venture Partners, Inc.(4).................................................. 266,666 19.3%
Thompson Dean(5)............................................................... -- --
William F. Dawson, Jr.(5)...................................................... -- --
David Y. Howe(6)............................................................... -- --
Randall E. Curran.............................................................. -- --
Kenneth H. Koch................................................................ 100 *
David A. Kauer................................................................. 27 *
Leslie G. Jacobs............................................................... 13 *
Michael R. Elia................................................................ -- --
Robert L. Smialek.............................................................. 19,631 *
All directors and officers as a group (9 persons)(5)(6)........................ 19,771 *
</TABLE>
* less than 1%.
(1) Includes 65,603 shares of Holdings Common Stock issuable upon exercise of
the DLJMB Warrants issued in connection with the PIK Preferred Stock. Also
includes 22,425 shares of Holdings Common Stock issuable upon exercise of
Warrants issued as part of the Units purchased by the DLJ Mezzanine
Investors. See "The Merger and the Merger Financing."
(2) Consists of shares held directly by the following investors related to
DLJMB: DLJ Offshore Partners II, C.V. ("Offshore"), a Netherlands Antilles
limited partnership, DLJ Diversified Partners, L.P. ("Diversified"), a
Delaware limited partnership, DLJMB Funding II, Inc. ("Funding"), a
Delaware corporation, DLJ Merchant Banking Partners II-A, L.P.
("DLJMBPIIA"), a Delaware limited partnership, DLJ Diversified Partners-A
L.P. ("Diversified A") a Delaware limited partnership, DLJ Millennium
Partners, L.P. ("Millennium"), a Delaware limited partnership, DLJ
Millennium Partners-A, L.P. ("Millennium A"), a Delaware limited
partnership, DLJ EAB Partners, L.P. ("EAB"), UK Investment Plan 1997
Partners ("UK Partners"), a Delaware partnership, DLJ First ESC L.P., a
Delaware limited partnership ("DLJ First ESC"), and DLJ ESC II, L.P., a
Delaware limited partnership ("DLJ ESC II"). See "Certain Relationships and
Related Transactions" and "Plan of Distribution." The address of each of
DLJMB, Diversified, Funding, DLJMBPIIA, Diversified A, Millennium,
Millennium A, DLJ First ESC, DLJ ESC II and EAB is 277 Park Avenue, New
York, New York 10172. The address of Offshore is John B. Gorsiraweg 14,
Willemstad, Curacao, Netherlands Antilles. The address of UK Partners is
2121 Avenue of the Stars, Fox Plaza, Suite 3000, Los Angeles, California
90067.
(3) Does not give effect to the issuance of the Insilco Unit Warrants.
(4) CVC is a wholly owned subsidiary of Citibank, N.A. The address of CVC is
399 Park Avenue, New York, NY 10022-4614.
(5) Messrs. Dean and Dawson are officers of DLJMB Inc., an affiliate of DLJMB
and the Initial Purchaser. The business address of Messrs. Dean and Dawson
is DLJMB Inc., 277 Park Avenue, New York, New York 10172. Share data shown
for such individuals excludes shares shown as held by the DLJMB Funds, as
to which such individuals disclaim beneficial ownership.
(6) Mr. Howe is an officer of Citicorp Venture Capital, Ltd., an affiliate of
CVC. The business address of Mr. Howe is 399 Park Avenue, New York, NY
10022-4614. Share data shown for Mr. Howe excludes shares shown as held by
CVC, as to which Mr. Howe disclaims beneficial ownership.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The DLJMB Funds own approximately 69% of the outstanding shares of the
Company's Common Stock (approximately 67.0% on a fully diluted basis after
giving effect to the issuance of the Insilco Unit Warrants). Messrs. Dean
and Dawson are officers of DLJMB and are directors of the Company. The
Company is not aware of any transaction or of any currently proposed
transaction, in which DLJ has any material direct or indirect interest as a
result of its ownership position in a party to the transaction other than
the Company, except as follows:
Donaldson Lufkin & Jenrette Securities Corporation ("DLJSC") will receive
customary fees in connection with the distribution of the Insilco Units,
received customary fees in connection with the distribution of the Holdings
Units and received an advisory fee in connection with the Mergers. In connection
with the sale of the Holdings Units, Holdings granted registration rights to
DLJSC in connection with its market-making activities and agreed to indemnify
DLJSC against certain liabilities, including liabilities under the Securities
Act. In addition, DLJ Capital Funding has committed to lend up to $300 million
to Insilco under the New Credit Facility and DLJSC has agreed to arrange the
New Credit Facility. DLJ Capital Funding and DLJSC will receive customary fees
in connection with the provision of the New Credit Facility. In addition, DLJ
Capital Funding received customary fees in connection with a commitment (since
terminated) to provide financing to fund the Offer to Purchase and refinancing
the Existing Credit Facility. The aggregate fees to be received by these DLJ
entities for these services are expected to be approximately $14.9 million.
DLJ Investment Partners, L.P., DLJ ESCII, L.P. and DLJ Investment Funding,
Inc. (the "DLJ Mezzanine Investors"), each of which is an affiliate of DLJMB,
purchased an aggregate of approximately 50% of the Holdings Units and are
entitled to certain registration rights in connection therewith.
In connection with the Mergers, DLJMB and the Company entered into an
agreement with respect to registration and certain other rights.
Prior to the Mergers, Water Street Corporate Recovery Fund I, L.P. ("Water
Street"), an affiliate of Goldman, Sachs & Co. ("Goldman Sachs"), beneficially
owned approximately 45% (62% prior to the Share Repurchase) of the Company's
common stock. The Company is not aware of any transaction or of any currently
proposed transaction in which Goldman Sachs had any material direct or indirect
interest as a result of its ownership position in a party to the transaction
other than the Company, except as follows:
Goldman Sachs advised the Company in connection with the Mergers and
received a fee of $2.0 million upon the consummation of the Mergers. In the
Mergers, Water Street received approximately $81.0 million and retained 62,962
shares of the Company. The Company has agreed to enter into a Registration
Rights Agreement with Water Street in which Water Street will have certain
registration rights with respect to such 62,962 shares.
During 1997, the Company paid Goldman Sachs $3,094,000 in underwriting
fees related to the 10 1/4% Notes, $2.0 Million in investment banking fees
in connection with the refinancing and the issuance of the 10 1/4% Notes,
and $0.2 million for services rendered in connection with the Share
Repurchase. Water Street received an aggregate of approximately $154.7
million in the Share Repurchase. Also during 1997, the Company paid
Goldman Sachs $2.0 million in investment banking fees and expenses related
to the sale of the Rolodex Business.
In 1996, Goldman Sachs advised the Company in connection with the purchase
of the Lingemann Business and received an investment banking fee of $1.0 million
and reimbursement of expenses.
An affiliate of Goldman Sachs was a lender under the Company's credit
agreement that preceded the Existing Credit Facility and in 1995 and 1996
received $0.46 million and $0.37 million, respectively, in fees and interest
under such agreement. Goldman Sachs Credit Partners L.P. is a member of the
bank group under the Existing Credit Facility and received $0.58 million from
the agent bank for its portion of the arrangement fee paid by the Company in
1997.
In 1995, the Company loaned $210,000 to James J. Gaffney, a director of the
Company, in two separate loan transactions. Each loan bore interest at a
variable rate equal to the applicable federal rate at the date of the loan,
adjusted semi-annually in accordance with changes in the applicable federal rate
and is payable to the Company on demand. Mr. Gaffney pledged 13,334 shares of
restricted stock of the Company to secure his repayment obligation under the
terms of the loans. The loan was repaid in full on February 19, 1997.
In 1995, the Company loaned $128,000 to James D. Miller, a former executive
officer of the Company. The loan bears interest at a variable rate equal to the
applicable federal rate at the date of the loan, adjusted semi-annually in
accordance with changes in the applicable federal rate and is payable to the
Company on demand. Mr. Miller pledged 15,246 shares of restricted stock of the
Company to secure his repayment obligation under the terms of the loan. Mr.
Miller terminated his employment with the Company on April 18, 1997 and the loan
was repaid in full.
The Company believes that the terms of all the transactions and existing
arrangements set forth above are no less favorable to the Company than similar
transactions and arrangements which might have been entered into with unrelated
parties.
DESCRIPTION OF CERTAIN INDEBTEDNESS
Existing Credit Facility
On July 3, 1997, Insilco refinanced its existing debt under a new six year
$200 million amended and restated credit agreement. The Existing Credit Facility
provides for a $200 million revolving credit facility with a $50 million
sublimit for issuance of letters of credit ($7.6 million outstanding at June 30,
1998) and a $50 million sublimit for alternative currency borrowings. The $200
million revolving credit facility is permanently reduced by $20 million per year
beginning July 2000 through July 2002 and matures on July 8, 2003.
Interest accrues under the Existing Credit Facility at floating rates
calculated with respect to either LIBOR or Citibank New York's Base Rate, plus
an applicable margin. The applicable margin, in turn, fluctuates based on the
financial performance of Insilco. Based on Insilco's current financial
performance, Insilco may borrow at the Base Rate (defined as the highest of (a)
Citibank's base rate, (b) the secondary market rate for three-month certificates
of deposit (adjusted for statutory reserve requirements) plus a customary charge
for FDIC deposit insurance and 0.50% and (c) the federal funds effective rate
plus 0.50%), plus 0.125%, or at LIBOR, plus 1.625%. Under the Existing Credit
Facility, Insilco also pays an unused commitment fee, which also fluctuates
based upon the financial performance of Insilco. As of June 30, 1998, the unused
commitment fee was 0.375%. In addition, Insilco pays per annum fees for the
issuance of letters of credit based upon the undrawn stated amount. The fees for
letters of credit are calculated again upon the financial performance of
Insilco. As of June 30, 1998, Insilco was paying 1.25% per annum of the undrawn
stated amount of issued and outstanding letters of credit.
Insilco is required to make mandatory prepayments on the Existing Credit
Facility which would reduce the maximum revolving credit commitments, subject to
certain exceptions, in the following circumstances: (i) an amount ranging from
50% to 100% of any net cash proceeds received by Insilco on account of (a) any
disposition of assets and the receipt of certain insurance and condemnation
proceeds (with certain exceptions), (b) any issuance of debt securities, and (c)
any sale and leaseback transaction in excess of a certain aggregate amount; and
(ii) an amount equal to 25% of any net cash proceeds received by Insilco on
account of the issuance of any capital stock.
The lenders' respective obligations to extend credit to Insilco under
the Existing Credit Facility are conditioned upon, among other things, the
following: (i) the continuing validity of the comprehensive representations and
warranties of Insilco and its subsidiaries and the performance of the various
financial and other covenants in the Existing Credit Facility and in any other
loan documents; (ii) Insilco's performance and compliance in all material
respects with all the terms, provisions, agreements and conditions set forth in
the 10 1/4% Note Indenture and the absence of any default thereunder; and (iii)
the absence of any material adverse change in the business, condition,
operations, performance, properties or prospects of Insilco or its subsidiaries
taken as a whole.
The Existing Credit Facility is guaranteed by Insilco, Holdings and by
substantially all of Insilco's present and future domestic subsidiaries.
The obligations thereunder are secured by (i) a pledge of the Insilco
common stock, (ii) all or a substantial portion of the common stock or
other interests in Insilco's present and future subsidiaries, (iii) the
present and future property and assets, including all accounts receivable,
inventory, equipment, fixtures, patents, trademarks, and specified real
property, of Insilco and its present and future domestic subsidiaries
(subject to certain qualifications and exceptions), and (iv) a collateral
assignment of intercompany notes and junior security agreements securing
all obligations of the domestic subsidiaries to Insilco and Insilco to
Holdings.
The Existing Credit Facility contains certain consolidated financial
covenants, including, but not limited to, covenants related to minimum
consolidated net worth, minimum fixed charge coverage ratio, minimum interest
coverage ratio, maximum leverage ratio and a limit on annual capital
expenditures. These financial covenants are subject to certain adjustments in
financial performance calculated in respect of projections submitted to the
lenders.
The Existing Credit Facility also contains certain negative covenants,
which, among other things, restrict, or in certain cases (including clauses (vi)
and (xi) below) prohibit, the ability of (i) Insilco and its subsidiaries to
incur additional indebtedness in excess of certain agreed upon amounts and
excluding certain types of indebtedness; (ii) Insilco and its domestic
subsidiaries to sell or transfer assets, in excess of certain agreed upon limits
and excluding certain types of assets; (iii) Insilco and its domestic
subsidiaries to create or grant liens other than permitted liens, purchase money
liens, and other liens of certain types and liens which secure agreed upon
amounts; (iv) Insilco and its domestic subsidiaries to make investments other
than permitted investments, and then only in prescribed amounts; (v) Insilco and
its subsidiaries to enter into accommodation obligations, except for certain
types of accommodation obligations and in certain amounts; (vi) Insilco and its
domestic subsidiaries to pay any dividends, redeem, purchase or acquire any of
Insilco's shares, or other rights with respect thereto, or pay any principal,
premium or interest in respect to any subordinated obligations with certain
qualifications and exceptions (permitting, in the ordinary course, the payment
of interest on the 10 1/4% Notes); (vii) Insilco and its subsidiaries to engage
in businesses not substantially similar, related or incidental to the present
businesses of Insilco and its subsidiaries; (viii) Insilco to enter into
transactions with affiliates other than on an arms-length basis; (ix) Insilco,
its domestic subsidiaries and foreign borrowers to consolidate, dissolve, merge,
or enter into joint ventures, with certain exceptions and under certain
conditions; (x) Insilco and its domestic subsidiaries to enter into sale and
lease-back transactions in excess of certain limits; (xi) Insilco and its
subsidiaries to cancel or prepay certain indebtedness; and (xii) Insilco to
amend the 10 1/4% Notes or voluntarily repay, redeem, purchase or otherwise
retire the 10 1/4% Notes.
The Existing Credit Facility contains specified events of default, which
include the failure to make payments of interest or principal when due, the
breach of certain affirmative or negative covenants, the breach of any
representation or warranty made by Insilco or any of its subsidiaries in any
loan document, a default as to other specified indebtedness or under material
operating leases, the commencement of a voluntary or involuntary bankruptcy
case, the entry against Insilco or any of its subsidiaries (and the lapse of
specified time periods without discharge of the same) or their property of any
judgment, writ, order or warrant of attachment, or other similar process which
brings about the voluntary dissolution of Insilco, the failure of any security
for the Existing Credit Facility, the occurrence of any termination event under
ERISA and the occurrence of any Change of Control (as defined therein).
The lenders under the Existing Credit Facility have consented to
permit Insilco to (i) amend the 10 1/4% Notes; (ii) repurchase in the Offer
to Purchase, under certain conditions, all of the 10 1/4% Notes; (iii) to
sell the Insilco Units and (iv) to engage in other necessary transactions
to effect the Refinancing.
10 1/4% Notes
The 10 1/4% Notes were issued under the 10 1/4% Note Indenture, dated as of
August 12, 1997, between Insilco and The Bank of New York, a New York banking
corporation, as trustee (the "Trustee"). The 10 1/4% Notes are unsecured senior
subordinated obligations of Insilco, are limited to $150 million aggregate
principal amount, will mature on August 15, 2007, and bear interest at the rate
of 10 1/4% per annum, payable semi-annually on February 15 and August 15 of each
year. The 10 1/4% Notes are redeemable, in whole or in part, at the option of
Insilco, at any time on or after August 15, 2002, at redemption prices
(expressed as percentages of the principal amount redeemed), plus accrued
interest to but excluding the redemption date, if redeemed during the
twelve-month period commencing on August 15 in the years set forth below:
<TABLE>
Year Redemption Price
- ------------------------------------------------------------ ----------------
<S> <C>
2002........................................................ 105.120%
2003........................................................ 103.410%
2004........................................................ 101.700%
2005........................................................ 100.000%
</TABLE>
The 10 1/4% Note Indenture contains covenants that, among other things (a)
limit the ability of Insilco and its Restricted Subsidiaries (as defined) to
incur additional indebtedness and contingent obligations; (b) limit the ability
of Insilco to grant liens on debt which is subordinate or junior to the 10 1/4%
Notes; (c) limit the ability of Insilco and its Restricted Subsidiaries to pay
dividends or make other distributions on account of, or purchase, redeem or
otherwise acquire, any shares of any class of its capital stock or, prior to any
scheduled maturity, repayment or sinking fund payment, any indebtedness of
Insilco that (subject to certain exceptions) is subordinate in right of payment
to the 10 1/4% Notes, or make any Investment (as defined) which is not a
Permitted Investment (as defined); (d) limit the incurrence of any debt or the
issuance of preferred stock by Insilco's Restricted Subsidiaries; (e) prohibit
the issuance by Insilco of any indebtedness that is by its terms subordinated in
right of payment to any senior debt and senior in right of payment to the 10
1/4% Notes; (f) prohibit Insilco's Restricted Subsidiaries, directly or
indirectly from assuming, guaranteeing or in any other manner becoming liable
with respect to any debt that by its terms is pari passu with or junior in right
of payment to the 10 1/4% Notes (although, as set forth below, the Company
has consented, to purchase of the Insilco Units, to use its reasonable best
efforts to obtain an amendment to the 10 1/4% Indenture to permit for such
guarantees); (g) limit the ability of Insilco and its Restricted
Subsidiaries to engage in transactions with Insilco's affiliates; (h) limit
the ability of Insilco to merge, consolidate or sell all or substantially all
its assets; (i) prohibit, subject to certain exceptions, Insilco or its
Restricted Subsidiaries from creating or permitting to exist any consensual
encumbrance or restriction on the ability of such subsidiaries to pay
dividends, repay certain indebtedness owed to Insilco or any such subsidiary
thereof or transfer assets to Insilco or its Restricted Subsidiaries; and (j)
limit the ability of Insilco and Insilco's Restricted Subsidiaries from making
certain asset sales and in connection with permitted asset sales require that
the proceeds thereof be used to make an offer to repurchase the 10 1/4% Notes
at 100% of their principal amount unless such proceeds have been reinvested
in the business of Insilco or used to repay indebtedness.
The 10 1/4% Note Indenture contains certain events of default which include
the failure to pay interest and principal on the 10 1/4% Notes, the failure to
comply with covenants in the 10 1/4% Notes or the 10 1/4% Note Indenture, a
payment default under, or acceleration of, certain other indebtedness of Insilco
and Insilco's Restricted Subsidiaries, the rendering of certain final judgments
and certain events occurring under bankruptcy laws.
The 10 1/4% Notes are subordinate in right of payment to all "senior
indebtedness" of Insilco, as such term is defined in the 10 1/4% Note Indenture.
As defined in the 10 1/4% Note Indenture, "senior indebtedness" includes, among
other things, indebtedness and other obligations owing in respect of the
Existing Credit Facility as well as amendments, modifications, renewals,
extensions, refinancing and refundings of any such indebtedness. All senior
indebtedness shall be and remain senior indebtedness for all purposes of the 10
1/4% Note Indenture, whether or not subordinated in any insolvency proceeding.
New Credit Facility
DLJ Capital Funding has committed to provide the New Credit Facility
described below. DLJ Capital Funding's commitment, however, expires on November
20, 1998 and is subject to significant conditions, including, without
limitation, (i) the mutual agreement of terms customary for transactions of this
nature and other customary conditions with respect to security, guarantee and
loan documentation, (ii) the absence of any facts, events or circumstances that
could reasonably be expected to materially and adversely affect the financial
condition, business, assets or results of operations of Insilco and its
subsidiaries, taken as a whole, (iii) the absence of any material disruption of
or material adverse change in current financial, banking or capital market
conditions that could impair the syndication of the New Credit Facility and (iv)
certain other matters. Accordingly, there can be no assurance that the New
Credit Facility will be available.
The New Credit Facility is expected to be provided by a syndicate of banks
and other financial institutions led by Donaldson, Lufkin & Jenrette Securities
Corporation, as arranger (the "Arranger"), DLJ Capital Funding, as syndication
agent (the "Syndication Agent"), and The First National Bank of Chicago, as
administrative agent (the "Administration Agent"). The New Credit Facility will
include a $100 million Term Loan Facility and a $200 million Revolving Credit
Facility (subject to adjustment as provided below), which will provide for
revolving loans and up to $50 million of letters of credit. The Term Loan
Facility will have a maturity of seven years. The Revolving Credit Facility will
terminate on July 8, 2003.
The New Credit Facility generally will bear interest, at Insilco's option,
at the Administrative Agent's alternate base rate or at the reserve-adjusted
London Interbank Offered Rate ("LIBOR") plus, in each case, applicable margins
of (i) in the case of alternate base rate loans, (x) 1.50% for revolving and (y)
2.25% for term loans and (ii) in the case of LIBOR loans, (x) 2.75% for
revolving and (y) 3.50% for term loans.
Insilco will pay a commitment fee calculated at a rate of 0.625% per annum
on the daily average unused commitment under the Revolving Credit Facility
(whether or not then available). Such fee will be payable monthly in arrears and
upon termination of the Revolving Credit Facility (whether at stated maturity or
otherwise).
Beginning after the first two full fiscal quarters ending after the closing
for the New Credit Facility, the applicable margins for the Revolving Credit
Facility, as well as the commitment fee and letter of credit fee, will be
subject to possible reductions based on the ratio of consolidated Debt to EBITDA
(each as defined in the New Credit Facility).
Insilco will pay a letter of credit fee on all outstanding letters of
credit, at a rate per annum equal to the then applicable margin for LIBOR loans
under the Revolving Credit Facility plus a fronting fee on the stated amount of
each letter of credit. Such fees will be payable monthly in arrears. In
addition, Insilco will pay customary transaction charges in connection with any
letters of credit.
Availability under the Revolving Credit Facility will decrease (i) on the
six month anniversary of the New Credit Facility closing date by an amount equal
to $46.0 million less the aggregate consideration paid in connection with
acquisitions or committed to be paid pursuant to a signed definitive acquisition
agreement entered into prior to such date and (ii) by $20.0 million on each of
July 10, 2000, July 10, 2001 and July 10, 2002.
The Term Loan Facility will be subject to the following amortization
schedule:
Percentage
Year Reduction
----- ----------
1 1.0%
2 1.0%
3 1.0%
4 1.0%
5 1.0%
6 1.0%
7 94.0%
100.0%
The Term Loan Facility will be subject to mandatory prepayment: (i) with
100% of the net cash proceeds from the issuance of debt, subject to certain
exceptions, (ii) with 100% of the net cash proceeds of asset sales and casualty
events, subject to certain exceptions, (iii) with 50% of Insilco's excess cash
flow (as defined in the New Credit Facility) to the extent that the Leverage
Ratio (as defined in the New Credit Facility) exceeds 3.5 to 1.0, and (iv) with
50% of the net cash proceeds from the issuance of equity to the extent that the
Leverage Ratio exceeds 3.5 to 1.0. Insilco's obligations under the New Credit
Facility will be secured by a first-priority perfected lien on: (i)
substantially all domestic property and assets, tangible and intangible (other
than accounts receivable sold or to be sold into the accounts receivable program
and short term real estate leases), of Insilco and its domestic subsidiaries;
(ii) the capital stock of (a) Insilco held by Holdings and (b) substantially all
subsidiaries of Insilco (provided that no more than 65% of the equity interest
in non-U.S. subsidiaries held by Insilco and its domestic subsidiaries and no
equity interests in subsidiaries held by foreign subsidiaries will be required
to be pledged); and (iii) all intercompany indebtedness. Holdings will guarantee
the obligations of Insilco under the New Credit Facility. In addition,
obligations under the New Credit Facility will be guaranteed by substantially
all domestic subsidiaries.
The New Credit Facility will contain customary covenants and restrictions
on Insilco's ability to engage in certain activities, including, but not limited
to: (i) limitations on the incurrence of liens and indebtedness, (ii)
restrictions on sale lease-back transactions, consolidations, mergers, sale of
assets, capital expenditures, transactions with affiliates and investments, and
(iii) severe restrictions on dividends, and other similar distributions.
The New Credit Facility will also contain financial covenants requiring
Insilco to maintain a minimum Interest Coverage Ratio (as defined in the New
Credit Facility); a minimum Fixed Charge Coverage Ratio (as defined in the New
Credit Facility); and a maximum Leverage Ratio (as defined in the New Credit
Facility).
12% Notes
The 12% Notes were issued under the 12% Note Indenture, dated as of
November 9, 1998, between Insilco and Star Bank, N.A., as trustee (the
"Trustee"). The 12% Notes are unsecured senior subordinated obligations of
Insilco, are limited to $120 million aggregate principal amount, will mature on
August 15, 2007, and bear interest at the rate of 12% per annum, payable
semi-annually on February 15 and August 15 of each year commencing February 15,
1999. The 12% Notes are redeemable, in whole or in part, at the option of
Insilco, at any time on or after August 15, 2002, at redemption prices
(expressed as percentages of the principal amount redeemed), plus accrued
interest to but excluding the redemption date, if redeemed during the
twelve-month period commencing on August 15 in the years set forth below:
<TABLE>
<CAPTION>
Year Redemption Price
- --------------------------------------------------------- ----------------
<S> <C>
2002............................................................. 106.000%
2003............................................................. 104.000%
2004............................................................. 102.000%
2005 and thereafter.............................................. 100.000%
</TABLE>
The 12% Note Indenture contains covenants that, among other things (a)
limit the ability of Insilco and its Restricted Subsidiaries (as defined) to
incur additional indebtedness and contingent obligations; (b) limit the ability
of Insilco to grant liens on debt which is subordinate or junior to the 12%
Notes; (c) limit the ability of Insilco and its Restricted Subsidiaries to pay
dividends or make other distributions on account of, or purchase, redeem or
otherwise acquire, any shares of any class of its capital stock or, prior to any
scheduled maturity, repayment or sinking fund payment, any indebtedness of
Insilco that (subject to certain exceptions) is subordinate in right of payment
to the 12% Notes, or make any Investment (as defined) which is not a Permitted
Investment (as defined); (d) limit the incurrence of any debt or the issuance of
preferred stock by Insilco's Restricted Subsidiaries; (e) prohibit the issuance
by Insilco of any indebtedness that is by its terms subordinated in right of
payment to any senior debt and senior in right of payment to the 12% Notes; (f)
prohibit Insilco's Restricted Subsidiaries, directly or indirectly from
assuming, guaranteeing or in any other manner becoming liable with respect to
any debt that by its terms is pari passu with or junior in right of payment to
the 12% Notes; (g) limit the ability of Insilco and its Restricted Subsidiaries
to engage in transactions with Insilco's affiliates; (h) limit the ability of
Insilco to merge, consolidate or sell all or substantially all its assets; (i)
prohibit, subject to certain exceptions, Insilco or its Restricted Subsidiaries
from creating or permitting to exist any consensual encumbrance or restriction
on the ability of such subsidiaries to pay dividends, repay certain indebtedness
owed to Insilco or any such subsidiary thereof or transfer assets to Insilco or
its Restricted Subsidiaries; and (j) limit the ability of Insilco and Insilco's
Restricted Subsidiaries from making certain asset sales and in connection with
permitted asset sales require that the proceeds thereof be used to make an offer
to repurchase the 12% Notes at 100% of their principal amount unless such
proceeds have been reinvested in the business of Insilco or used to repay
indebtedness.
The 12% Note Indenture contains certain events of default which include the
failure to pay interest and principal on the 12% Notes, the failure to comply
with covenants in the 12% Notes or the 12% Note Indenture, a payment default
under, or acceleration of, certain other indebtedness of Insilco and Insilco's
Restricted Subsidiaries, the rendering of certain final judgments and certain
events occurring under bankruptcy laws.
The 12% Notes are subordinate in right of payment to all "senior
indebtedness" of Insilco, as such term is defined in the 12% Note Indenture. As
defined in the 12% Note Indenture, "senior indebtedness" includes, among other
things, indebtedness and other obligations owing in respect of the Existing
Credit Facility as well as amendments, modifications, renewals, extensions,
refinancing and refundings of any such indebtedness. All senior indebtedness
shall be and remain senior indebtedness for all purposes of the 12% Note
Indenture, whether or not subordinated in any insolvency proceeding.
DESCRIPTION OF EXCHANGE NOTES
The Old Notes were issued and the Exchange Notes will be issued under the
Indenture dated as of August 17, 1998 between Silkworm and Star Bank, N.A., as
trustee (the "Trustee"), as amended by The First Supplemental Indenture dated as
of August 17, 1998 between Holdings and the Trustee (as amended, the
"Indenture"). The Indenture has been filed as an exhibit to the registration
statement (the "Registration Statement") of which this Prospectus forms a part.
The Indenture will be qualified under the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act") upon effectiveness of the Registration
Statement. The following summary of the material provisions of the Indenture
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, the provisions of the Indenture, including the definitions of
certain terms contained therein and those terms made part of the Indenture by
reference to the Trust Indenture Act. The definitions of certain general terms
used in the following summary are set forth below under "--Certain Definitions."
The Old Notes and the Exchange Notes will constitute a single series of
debt securities under the Indenture. If the Exchange Offer is consummated,
holders of Old Notes who do not exchange their Old Notes for Exchange Notes will
vote together with the holders of Exchange Notes for all relevant purposes under
the Indenture. In that regard, the Indenture requires that certain actions by
the holders thereunder (including acceleration following an Event of Default)
must be taken, and certain rights must be exercised, by specified minimum
percentages of the aggregate principal amount of the outstanding debt
securities. In determining whether holders of the requisite percentage in
principal amount have given any notice, consent or waiver or taken any other
action permitted under the Indenture, any Old Notes which remain outstanding
after the Exchange Offer will be aggregated with the Exchange Notes and the
holders of such Old Notes and Exchange Notes will vote together as a single
series for all such purposes. Accordingly, all references herein to specified
percentages in aggregate principal amount at maturity of the outstanding Senior
Notes shall be deemed to mean, at any time after the Exchange Offer is
consummated, such percentage in aggregate principal amount at maturity of the
Old Notes and Exchange Notes then outstanding.
The Exchange Notes and the Old Notes are sometimes referred to as,
collectively, the "Senior Discount Notes" and, individually, a "Senior Discount
Note."
The Senior Discount Notes are general unsecured obligations of the Company
and are senior in right of payment to all future Indebtedness of the Company
that is subordinated to the Senior Discount Notes and pari passu in right
of payment with all future Indebtedness of the Company that is not
subordinated to the Senior Discount Notes. The Company is the sole obligor
with respect to the Senior Discount Notes; however, the operations of the
Company are conducted entirely through its Subsidiaries and, therefore, the
Company is completely dependent upon the operations and cash flow of its
Subsidiaries to meet its obligations, including its obligations under the
Senior Discount Notes. The Existing Credit Facility, the 10 1/4% Note
Indenture and the 12% Note Indenture significantly restrict, and the New
Credit Facility is expected to significantly restrict, Insilco's ability to
pay dividends or make any other distributions to the Company. The ability
of Insilco to comply with the conditions in the Existing Credit Facility,
the New Credit Facility, the 10 1/4% Note Indenture and the 12% Note
Indenture may be affected by certain events that are beyond the Cpmpany's
control. The Senior Discount Notes are effectively subordinated to all
Indebtedness and other liabilities (including, without limitation, trade
payables and lease obligations) of the Company's Subsidiaries, including,
without limitation, to Insilco's obligations under the Existing Credit
Facility or the New Credit Facility, as the case may be, the 10 1/4% Note
Indenture and the 12% Note Indenture. Any right of the Company to receive
assets of any of its Subsidiaries upon such Subsidiary's liquidation or
reorganization (and the consequent right of Holders of the Senior Discount
Notes to participate in those assets) is effectively subordinated to the
claims of that Subsidiary's creditors except to the extent that the Company
itself is recognized as a creditor of such Subsidiary, in which case the
claims of the Company would still be subordinate to the claims of such
creditors who hold security in the assets of such Subsidiary and to the
claims of such creditors who hold Indebtedness of such Subsidiary senior to
that held by the Company. As of June 30, 1998, on a pro forma basis giving
effect to the Mergers, the Merger Financing and the Refinancing and the
application of proceeds therefrom, the Company and its subsidiaries would
have had Indebtedness of approximately $385.8 million and the Issuer's
Subsidiaries would have had approximately $449.5 million of outstanding
liabilities. The Indenture will permit the incurrence of certain
additional Indebtedness of the Issuer and the Issuer's Subsidiaries in the
future. See "Risk Factors--Limitation on Access to Cash Flow of
ubsidiaries; Holding Company Structure," "Risk Factors--Substantial
Leverage; Liquidity; Stockholders' Deficit" and "--Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock."
All of the Issuer's Subsidiaries are Restricted Subsidiaries. However,
under certain circumstances, the Issuer is permitted to designate current or
future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries are
subject to the restrictive covenants set forth in the Indenture.
Principal, Maturity and Interest
The Senior Discount Notes are limited in aggregate principal amount at
maturity to $138.0 million and will mature on August 15, 2008. The Senior
Discount Notes were issued at a substantial discount from their principal amount
at maturity in order to generate gross proceeds of $68.2 million. Until August
15, 2003, no interest will accrue on the Senior Discount Notes, but the Accreted
Value will increase (representing amortization of original issue discount)
between the date of original issuance and August 15, 2003, on a semi-annual bond
equivalent basis using a 360-day year comprised of twelve 30-day months, such
that the Accreted Value shall be equal to the full principal amount at maturity
of the Senior Discount Notes on August 15, 2003. Beginning on August 15, 2003,
interest on the Senior Discount Notes will accrue at the rate of 14% per annum
and will be payable in cash semi-annually in arrears on February 15 and August
15, commencing on February 15, 2004, to Holders of record on the immediately
preceding February 1 and August 1. Interest on the Senior Discount Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from August 15, 2003. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months. Principal of,
premium, if any, and interest and Liquidated Damages, if any, on the Senior
Discount Notes will be payable at the office or agency of the Issuer maintained
for such purpose within the City and State of New York or, at the option of the
Issuer, payment of interest and Liquidated Damages may be made by check mailed
to the Holders of the Senior Discount Notes at their respective addresses set
forth in the register of Holders of Senior Discount Notes; provided that (i) all
payments of principal, premium, interest and Liquidated Damages with respect to
Senior Discount Notes represented by one or more permanent global Senior
Discount Notes will be paid by wire transfer of immediately available funds to
the account of DTC or any successor thereto and (ii) any Liquidated Damages
attributable to periods ending on or before August 15, 2003 shall be payable
through the issuance of additional Senior Discount Notes (valued at 100% of the
Accreted Value thereof on the date of any such payment). Until otherwise
designated by the Issuer, the Issuer's office or agency in New York will be the
office of the Trustee maintained for such purpose. The Senior Discount Notes
were issued in denominations of $1,000 and integral multiples thereof.
Subject to the covenants described below, the Issuer may issue additional
notes under the Indenture having the same terms in all respects as the Senior
Discount Notes (or in all respects except for the payment of interest on the
Senior Discount Notes (i) scheduled and paid prior to the date of issuance of
such notes or (ii) payable on the first Interest Payment Date following such
date of issuance). The Senior Discount Notes and any such additional notes would
be treated as a single class for all purposes under the Indenture.
Optional Redemption
Except as provided below, the Senior Discount Notes are not redeemable at
the Issuer's option prior to August 15, 2003. Thereafter, the Senior Discount
Notes will be subject to redemption at any time at the option of the Issuer, in
whole or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount at maturity) set
forth below, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on August 15 of the years indicated below:
Year Percentage
- ---------------------------------------------------------------- -------------
2003............................................................ 107.000%
2004............................................................ 104.667%
2005............................................................ 102.333%
2006 and thereafter............................................. 100.000%
Notwithstanding the foregoing, on or prior to August 15, 2001, the Issuer
may redeem up to 100% of the aggregate principal amount at maturity of Senior
Discount Notes ever issued under the Indenture at a redemption price of 114% of
the Accreted Value thereof, plus Liquidated Damages, if any, thereon to the
redemption date, with the net cash proceeds of one or more Public Equity
Offerings; provided that, such redemption shall occur within 365 days of the
date of the closing of any such Public Equity Offering.
In addition, at any time prior to August 15, 2003, the Issuer may, at its
option upon the occurrence of a Change of Control, redeem the Senior Discount
Notes, in whole but not in part, upon not less than 30 nor more than 60 days'
prior notice (but in no event may any such redemption occur more than 60 days
after the occurrence of such Change of Control), in cash at a redemption price
equal to (i) the present value at such time of the optional redemption price of
such Senior Discount Note at August 15, 2003 (such redemption price being
described under "--Optional Redemption") computed using a discount rate equal to
the Treasury Rate plus 75 basis points, plus (ii) accrued and unpaid interest
and Liquidated Damages, if any, to the date of redemption.
"Treasury Rate" means, as of any redemption date, the yield to maturity as
of such redemption date of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available at least two
Business Days prior to the redemption date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data)) most
nearly equal to the period from the redemption date to August 15, 2003; provided
that if the period from the redemption date to August 15, 2003 is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
Selection and Notice
If less than all of the Senior Discount Notes are to be redeemed at any
time, selection of Senior Discount Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the Senior Discount Notes are listed, or, if the
Senior Discount Notes are not so listed, on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate; provided that no Senior
Discount Notes having a principal amount at maturity of $1,000 or less shall be
redeemed in part. Notices of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each Holder of
Senior Discount Notes to be redeemed at its registered address. Notices of
redemption may not be conditional. If any Senior Discount Note is to be redeemed
in part only, the notice of redemption that relates to such Senior Discount Note
shall state the portion of the principal amount at maturity thereof to be
redeemed. A new Senior Discount Note in principal amount at maturity equal to
the unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Senior Discount Note. Senior Discount Notes
called for redemption become due on the date fixed for redemption. On and after
the redemption date, interest ceases to accrue on Senior Discount Notes or
portions of them called for redemption.
Mandatory Redemption
The Issuer is not required to make mandatory redemption of, or sinking fund
payments with respect to, the Senior Discount Notes.
Repurchase at the Option of Holders
Public Common Stock Offerings
Upon the occurrence of a Public Common Stock Offering prior to August 15,
2001, the Issuer is required to make an offer to all Holders of Senior Discount
Notes pursuant to the offer described below (the "Public Common Stock Offering
Offer") to purchase the maximum principal amount at maturity of Senior Discount
Notes that may be purchased with the net cash proceeds of the Public Common
Stock Offering at an offer price in cash equal to 114% of the Accreted Value
thereof, plus accrued and unpaid Liquidated Damages, if any, thereon to the date
of repurchase (the "Public Common Stock Offering Payment"). Within 65 days
following any such Public Common Stock Offering, the Issuer will (or will cause
the Trustee to) mail a notice to each Holder describing the transaction or
transactions that constitute the Public Common Stock Offering and offering to
repurchase Senior Discount Notes, pursuant to the procedures required by the
Indenture and described in such notice. If the aggregate Public Common Stock
Offering Payment of Senior Discount Notes surrendered by Holders thereof in
connection with a Public Common Stock Offering offer exceeds the net cash
proceeds of the Public Common Stock Offering, the Trustee shall select the
Senior Discount Notes to be purchased as set forth under "--Selection and
Notice." The Issuer will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Senior Discount Notes as a result of a Public Common Stock
Offering. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the Indenture relating to such
Public Common Stock Offering Offer, the Issuer will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the Indenture by virtue thereof.
On the Public Common Stock Offering Payment Date, the Issuer will, to the
extent lawful, (a) accept for payment all Senior Discount Notes or portions
thereof properly tendered pursuant to the Public Common Stock Offering Offer,
(b) deposit with the Paying Agent an amount equal to the Public Common Stock
Offering Payment in respect of all Senior Discount Notes or portions thereof so
tendered and (c) deliver or cause to be delivered to the Trustee the Senior
Discount Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount at maturity of Senior Discount Notes or portions
thereof being purchased by the Issuer. The Paying Agent will promptly mail to
each Holder of Senior Discount Notes so tendered the Public Common Stock
Offering Payment for such Senior Discount Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book-entry) to each Holder
a new Senior Discount Note equal in principal amount at maturity to any
unpurchased portion of the Senior Discount Notes surrendered, if any; provided
that each such new Senior Discount Note will be in a principal amount at
maturity of $1,000 or an integral multiple thereof. The Issuer will publicly
announce the results of the Public Common Stock Offering Offer on or as soon as
practicable after the Public Common Stock Offering Payment Date.
The Indenture will provide that the Issuer will fix the Public Common Stock
Offering Payment Date no earlier than 30 but no more than 60 days after the
Public Common Stock Offering Offer is mailed as set forth above. Prior to
complying with the provisions of the preceding sentence, but in any event within
60 days following a Public Common Stock Offering, the Issuer will either repay
all outstanding Indebtedness of the Issuer or any of its Subsidiaries that
restricts the ability of the Issuer to repurchase, or obtain funds to
repurchase, the Senior Discount Notes or obtain the requisite consents, if any,
under all agreements governing all such outstanding Indebtedness to permit the
repurchase, or the obtaining of funds for the repurchase, of the Senior Discount
Notes required by this covenant. The Existing Credit Facility contains
provisions that currently prohibit the use of the proceeds of a Public Common
Stock Offering to repurchase Senior Discount Notes. In the event of a Public
Common Stock Offering, the Company will be required to obtain an amendment or
waiver to the Existing Credit Facility in order to satisfy its obligations to
purchase Senior Discount Notes with the net cash proceeds of a Public Common
Stock Offering. No assurance can be given that the Issuer will be able to obtain
any such amendment or waiver with respect to a Public Common Stock Offering. The
Issuer's failure to make a Public Common Stock Offering Offer when required or
to purchase tendered Senior Discount Notes when tendered would constitute an
Event of Default under the Indenture. See "Risk Factors."
The Public Common Stock Offering provisions described above will be
applicable whether or not any other provisions of the Indenture are applicable
and shall apply to each Public Common Stock Offering occurring during the
three-year period ending on August 15, 2001.
Change of Control
Upon the occurrence of a Change of Control, each Holder of Senior Discount
Notes will have the right to require the Issuer to repurchase all or any part
(equal to $1,000 principal amount at maturity or an integral multiple thereof)
of such Holder's Senior Discount Notes pursuant to the offer described below
(the "Change of Control Offer") at an offer price in cash equal to 101% of the
Accreted Value thereof, in the case of any such purchase prior to August 15,
2003, or 101% of the aggregate principal amount at maturity thereof, in the case
of any such purchase on or after August 15, 2003, in each case plus accrued and
unpaid interest, if any, and Liquidated Damages, if any, thereon to the date of
repurchase (the "Change of Control Payment"). Within 65 days following any
Change of Control, the Issuer will (or will cause the Trustee to) mail a notice
to each Holder describing the transaction or transactions that constitute the
Change of Control and offering to repurchase Senior Discount Notes, pursuant to
the procedures required by the Indenture and described in such notice. The
Issuer will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of the Senior
Discount Notes as a result of a Change of Control. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
the Indenture relating to such Change of Control Offer, the Issuer will comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations described in the Indenture by virtue thereof.
On the Change of Control Payment Date, the Issuer will, to the extent
lawful, (a) accept for payment all Senior Discount Notes or portions thereof
property tendered pursuant to the Change of Control Offer, (b) deposit with the
Paying Agent an amount equal to the Change of Control Payment in respect of all
Senior Discount Notes or portions thereof so tendered and (c) deliver or cause
to be delivered to the Trustee the Senior Discount Notes so accepted together
with an Officers' Certificate stating the aggregate principal amount at maturity
of Senior Discount Notes or portions thereof being purchased by the Issuer. The
Paying Agent will promptly mail to each Holder of Senior Discount Notes so
tendered the Change of Control Payment for such Senior Discount Notes, and the
Trustee will promptly authenticate and mail (or cause to be transferred by
book-entry) to each Holder a new Senior Discount Note equal in principal amount
at maturity to any unpurchased portion of the Senior Discount Notes surrendered,
if any; provided that each such new Senior Discount Note will be in a principal
amount at maturity of $1,000 or an integral multiple thereof. The Issuer will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Indenture provides that the Issuer will fix the Change of Control
Payment Date no earlier than 30 but no more than 60 days after the Change of
Control Offer is mailed as set forth above. Prior to complying with the
provisions of the preceding sentence, but in any event within 60 days following
a Change of Control, the Issuer will either repay all outstanding Indebtedness
of the Issuer or any of its Subsidiaries that restricts the ability of the
Issuer to repurchase, or obtain funds to repurchase, the Senior Discount Notes
or obtain the requisite consents, if any, under all agreements governing all
such outstanding Indebtedness to permit the repurchase, or the obtaining of
funds for the repurchase, of the Senior Discount Notes required by this
covenant. The Existing Credit Facility and the 10 1/4% Note Indenture restrict
Insilco from paying any dividends or making any other distributions to the
Issuer. If the Issuer does not obtain the consent of the lenders under
agreements governing outstanding Indebtedness of its Subsidiaries, including
under the Existing Credit Facility and the 10 1/4% Note Indenture, to permit the
repurchase of the Senior Discount Notes or does not refinance such Indebtedness,
the Issuer will likely not have the financial resources to purchase Senior
Discount Notes and the Issuer's Subsidiaries will be restricted by the terms of
such Indebtedness from paying dividends to the Issuer or otherwise lending or
distributing funds to the Issuer for the purpose of such purchase. In any event,
there can be no assurance that the Issuer's Subsidiaries will have the resources
available to pay any such dividend or make any such distribution. The Issuer's
failure to make a Change of Control Offer when required or to purchase tendered
Senior Discount Notes when tendered would constitute an Event of Default under
the Indenture. See "Risk Factors."
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Senior Discount Notes to require that
the Issuer repurchase or redeem the Senior Discount Notes in the event of a
takeover, recapitalization or similar transaction.
The Issuer will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Issuer and
purchases all Senior Discount Notes validly tendered and not withdrawn under
such Change of Control Offer.
"Change of Control" means the occurrence of any of the following: (a) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Issuer and its Subsidiaries, taken as a
whole, to any "person" or "group" (as such terms are used in Section 13(d) of
the Exchange Act), other than the Principals and their Related Parties; (b) the
adoption of a plan for the liquidation or dissolution of the Issuer, (c) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" or "group" (as such
terms are used in Section 13(d) of the Exchange Act), other than the Principals
and their Related Parties, becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly through one or more intermediaries, of 50% or more of the voting
power of the outstanding voting stock of the Issuer; or (d) the first day on
which a majority of the members of the Board of Directors of the Issuer are not
Continuing Directors.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Issuer and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Senior Discount Notes to require
the Issuer to repurchase such Senior Discount Notes as a result of a sale,
lease, transfer, conveyance or other disposition of less than all of the assets
of the Issuer and its Subsidiaries taken as a whole to another Person or group
may be uncertain.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Issuer who (a) was a member of such Board of
Directors immediately after consummation of the Merger or (b) was nominated for
election or elected to such Board of Directors with the approval of, or whose
election to the Board of Directors was ratified by, at least a majority of the
Continuing Directors who were members of such Board of Directors at the time of
such nomination or election.
Asset Sales
The Indenture provides that the Issuer will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (a) the Issuer
or such Restricted Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (b) at least 75% of the consideration therefor
received by the Issuer or such Restricted Subsidiary is in the form of (i) cash
or Cash Equivalents or (ii) property or assets that are used or useful in a
Permitted Business, or the Capital Stock of any Person engaged in a Permitted
Business if, as a result of the acquisition by the Issuer or any Restricted
Subsidiary thereof, such Person becomes a Restricted Subsidiary; provided that
the amount of (x) any liabilities (as shown on the Issuer's or such Restricted
Subsidiary's most recent balance sheet), of the Issuer or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the Senior Discount Notes or any guarantee thereof) that
are assumed by the transferee of any such assets pursuant to a customary
novation agreement that releases the Issuer or such Restricted Subsidiary from
further liability, (y) any securities, notes or other obligations received by
the Issuer or any such Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted by the
Issuer or such Restricted Subsidiary into cash or Cash Equivalents (to the
extent of the cash or Cash Equivalents received), and (z) any Designated Noncash
Consideration received by the Issuer or any of its Restricted Subsidiaries in
such Asset Sale having an aggregate fair market value, taken together with all
other Designated Noncash Consideration received pursuant to this clause (z) that
is at that time outstanding, not to exceed 15% of Total Assets at the time of
the receipt of such Designated Noncash Consideration (with the fair market value
of each item of Designated Noncash Consideration being measured at the time
received and without giving effect to subsequent changes in value), shall be
deemed to be cash for purposes of this provision; and provided further that the
75% limitation referred to in clause (b) above will not apply to any Asset Sale
in which the after-tax cash or Cash Equivalents portion of the consideration
received therefrom, determined in accordance with the foregoing proviso, is
equal to or greater than what the after-tax cash or cash equivalent portion of
the consideration would have been had such Asset Sale complied with the
aforementioned 75% limitation.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Issuer or any such Restricted Subsidiary shall apply such Net Proceeds, at
its option, to (a) repay or purchase Pari Passu Indebtedness of the Issuer or
any Indebtedness of any Restricted Subsidiary, provided that, if the Issuer
shall so repay or purchase Pari Passu Indebtedness of the Issuer, it will
equally and ratably reduce Indebtedness under the Senior Discount Notes if the
Senior Discount Notes are then redeemable, or, if the Senior Discount Notes may
not then be redeemed, the Issuer shall make an offer (in accordance with the
procedures set forth below for an Asset Sale Offer) to all Holders of Senior
Discount Notes to purchase at a purchase price equal to 100% of the principal
amount at maturity of the Senior Discount Notes (or, in the case of purchases of
Senior Discount Notes prior to August 15, 2003, at a purchase price equal to
100% of the Accreted Value thereof), plus accrued and unpaid interest and
Liquidated Damages, if any, thereon as of the date of purchase of the Senior
Discount Notes that would otherwise be redeemed, or (b) make an investment in
property, make a capital expenditure or acquire assets that are used or useful
in a Permitted Business, or Capital Stock of any Person primarily engaged in a
Permitted Business if (i) as a result of the acquisition by the Issuer or any
Restricted Subsidiary thereof, such Person becomes a Restricted Subsidiary or
(ii) the Investment in such Capital Stock is permitted by clause (f) of the
definition of Permitted Investments. Pending the final application of any such
Net Proceeds, the Issuer may temporarily reduce Indebtedness or otherwise invest
such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $15.0 million, the Issuer
will be required to make an offer to all Holders of Senior Discount Notes (an
"Asset Sale Offer") to purchase the maximum principal amount at maturity of
Senior Discount Notes that may be purchased out of the Excess Proceeds, at an
offer price in cash in an amount equal to 100% of the principal amount at
maturity thereof, plus accrued and unpaid interest and Liquidated Damages, if
any, thereon to the date of purchase (or, in the case of repurchases of Senior
Discount Notes prior to August 15, 2003, at a purchase price equal to 100% of
the Accreted Value, plus Liquidated Damages, if any, thereon as of the date of
repurchase), in accordance with the procedures set forth in the Indenture. To
the extent that any Excess Proceeds remain after consummation of an Asset Sale
Offer, the Issuer may use such Excess Proceeds for any purpose not otherwise
prohibited by the Indenture. If the aggregate principal amount at maturity or
Accreted Value (as applicable) of Senior Discount Notes surrendered by Holders
thereof in connection with an Asset Sale Offer exceeds the amount of Excess
Proceeds, the Trustee shall select the Senior Discount Notes to be purchased as
set forth under "--Selection and Notice." Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset at zero.
The Issuer will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Senior Discount Notes pursuant to an Asset Sale Offer. To the
extent that the provisions of any securities laws or regulations conflict with
the provisions of the Indenture relating to such Asset Sale Offer, the Issuer
will comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations described in the Indenture by virtue
thereof.
The Existing Credit Facility and the 10 1/4% Note Indenture restrict
Insilco from paying any dividends or making any other distributions to the
Issuer to permit the Issuer to make an Asset Sale Offer. If the Issuer does not
obtain the consent of the lenders under agreements governing outstanding
Indebtedness of its Subsidiaries, including under the Existing Credit Facility
and the 10 1/4% Note Indenture, to permit the repurchase of the Senior Discount
Notes or does not refinance such Indebtedness, the Issuer will likely not have
the financial resources to purchase Senior Discount Notes and the Issuer's
Subsidiaries will be restricted by the terms of such Indebtedness from paying
dividends to the Issuer or otherwise lending or distributing funds to the Issuer
for the purpose of such purchase. In any event, there can be no assurance that
the Issuer's Subsidiaries will have the resources available to pay any such
dividend or make any such distribution. The Issuer's failure to make an Asset
Sale Offer when required or to purchase tendered Senior Discount Notes when
tendered would constitute an Event of Default under the Indenture. See "Risk
Factors."
Certain Covenants
Restricted Payments
The Indenture provides that the Issuer will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any
dividend or make any other payment or distribution on account of the Issuer's or
any of its Restricted Subsidiaries' Equity Interests (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of the
Issuer or dividends or distributions payable to the Issuer or any Wholly Owned
Restricted Subsidiary of the Issuer); (b) purchase, redeem or otherwise acquire
or retire for value any Equity Interests of the Issuer, any of its Restricted
Subsidiaries or any other Affiliate of the Issuer (other than any such Equity
Interests owned by the Issuer or any Restricted Subsidiary of the Issuer); (c)
make any principal payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value, any Indebtedness of the Issuer (other
than the Senior Discount Notes and Indebtedness in respect of the Existing
Credit Facility) that is pari passu or subordinated in right of payment to the
Senior Discount Notes, except in accordance with the mandatory redemption or
repayment provisions set forth in the original documentation governing such
Indebtedness or in accordance with the covenant described under the caption
entitled "--Repurchase at the Option of Holders--Asset Sales" (but not pursuant
to any other mandatory offer to repurchase upon the occurrence of any event); or
(d) make any Restricted Investment (all such payments and other actions set
forth in clauses (a) through (d) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(i) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(ii) the Issuer would, immediately after giving pro forma effect
thereto as if such Restricted Payment had been made at the beginning of the
applicable four-quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described under caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock"; and
(iii) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Issuer and its Restricted Subsidiaries
after the Issue Date (excluding Restricted Payments permitted by clauses (a) (to
the extent that the declaration of any dividend referred to therein reduces
amounts available for Restricted Payments pursuant to this clause (iii)), (b),
(c), (e) through (h), (j), (k), and (m) through (o) and (q) of the next
succeeding paragraph), is less than the sum, without duplication, of (A) 50% of
the Adjusted Consolidated Net Income of the Issuer for the period (taken as one
accounting period) commencing October 1, 1998 to the end of the Issuer's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Adjusted
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (B) 100% of the Qualified Proceeds received by the Issuer on or
after the Issue Date from contributions to the Issuer's capital or from the
issue or sale on or after the Issue Date of Equity Interests of the Issuer or of
Disqualified Stock or convertible debt securities of the Issuer to the extent
that they have been converted into such Equity Interests (other than Equity
Interests, Disqualified Stock or convertible debt securities sold to a
Subsidiary of the Issuer and other than Disqualified Stock or convertible debt
securities that have been converted into Disqualified Stock), plus (C) the
amount equal to the net reduction in Investments in Persons after the date of
the Indenture who are not Restricted Subsidiaries (other than Permitted
Investments) resulting from (x) Qualified Proceeds received as a dividend,
repayment of a loan or advance or other transfer of assets (valued at the fair
market value thereof) to the Issuer or any Restricted Subsidiary from such
Persons, (y) Qualified Proceeds received upon the sale or liquidation of such
Investment and (z) the redesignation of Unrestricted Subsidiaries (excluding any
increase in the amount available for Restricted Payments pursuant to clause (i)
or (m) below arising from the redesignation of such Unrestricted Subsidiary)
whose assets are used or useful in, or which is engaged in, one or more
Permitted Business as Restricted Subsidiaries (valued (proportionate to the
Issuer's equity interest in such Subsidiary) at the fair market value of the net
assets of such Subsidiary at the time of such redesignation).
The foregoing provisions will not prohibit:
(a) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would
have complied with the provisions of the Indenture;
(b) (i) the redemption, repurchase, retirement, defeasance or other
acquisition of any pari passu Indebtedness, Subordinated Indebtedness
or Equity Interests of the Issuer (the "Retired Capital Stock") in
exchange for, or out of the net cash proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Issuer) of, other
Equity Interests of the Issuer (other than any Disqualified Stock) (the
"Refunding Capital Stock"), provided that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from
clause (iii)(B) of the preceding paragraph, and (ii) if immediately
prior to the retirement of Retired Capital Stock, the declaration and
payment of dividends thereon was permitted under clause (f) of this
paragraph, the declaration and payment of dividends on the Refunding
Capital Stock in an aggregate amount per year no greater than the
aggregate amount of dividends per annum that was declarable and payable
on such Retired Capital Stock immediately prior to such retirement;
provided that, at the time of the declaration of any such dividends, no
Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof;
(c) the defeasance, redemption, repurchase, retirement or other
acquisition of Subordinated Indebtedness of the Issuer with the net
cash proceeds from an incurrence of, or in exchange for, Permitted
Refinancing Indebtedness;
(d) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Issuer or Insilco held by any
member of Insilco's or the Issuer's (or any of its Restricted
Subsidiaries') management pursuant to any management equity
subscription agreement or stock option agreement, provided that (i) the
aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed (x) $7.5 million in any
calendar year (with unused amounts in any calendar year being carried
over to succeeding calendar years subject to a maximum (without giving
effect to the following clause (y)) of $15.0 million in any calendar
year), plus (y) the aggregate cash proceeds received by the Issuer
during such calendar year from any reissuance of Equity Interests by
the Issuer or Insilco to members of management of the Issuer and its
Restricted Subsidiaries and (ii) no Default or Event of Default shall
have occurred and be continuing immediately after such transaction;
(e) payments and transactions in connection with the Recapitalization
and the application of the proceeds thereof, and the payment of fees
and expenses with respect thereto;
(f) the declaration and payment of dividends to holders of any class
or series of preferred stock (other than Disqualified Stock), provided
that, at the time of such issuance, after giving effect to such
issuance on a pro forma basis, the Fixed Charge Coverage Ratio for the
Issuer for the most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the
date of such issuance would have been no less than 1.5 to 1;
(g) the payment of dividends by a Restricted Subsidiary on any class
of common stock of such Restricted Subsidiary if (i) such dividend is
paid pro rata to all holders of such class of common stock and (ii) at
least 51% of such class of common stock is held by the Issuer or one or
more of its Restricted Subsidiaries;
(h) the repurchase of any class of common stock of a Restricted
Subsidiary if (i) such repurchase is made pro rata with respect to such
class of common stock and (ii) at least 51% of such class of common
stock is held by the Issuer or one or more of its Restricted
Subsidiaries;
(i) any other Restricted Investment made in a Permitted Business
which, together with all other Restricted Investments made pursuant to
this clause (i) since the date of the Indenture, does not exceed $25.0
million (in each case, after giving effect to all subsequent reductions
in the amount of any Restricted Investment made pursuant to this clause
(i), either as a result of (A) the repayment or disposition thereof for
cash or (B) the redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary (valued proportionate to the Issuer's equity
interest in such Subsidiary at the time of such redesignation at the
fair market value of the net assets of such Subsidiary at the time of
such redesignation), in the case of clause (A) and (B), not to exceed
the amount of such Restricted Investment previously made pursuant to
this clause (i)); provided that no Default or Event of Default shall
have occurred and be continuing immediately after making such
Restricted Investment;
(j) the declaration and payment of dividends to holders of any class
or series of Disqualified Stock of the Issuer or any Restricted
Subsidiary issued on or after the date of the Indenture in accordance
with the covenant described under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock"; provided that no Default
or Event of Default shall have occurred and be continuing immediately
after making such Restricted Payment;
(k) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the
exercise price of such options;
(l) the payment of dividends on the Issuer's or Insilco's common
stock, following the first public offering of the Issuer's or Insilco's
common stock after the date of the Indenture, of up to 6.0% per annum
of the net proceeds received by the Issuer or Insilco from such public
offering of its common stock, other than, in each case, with respect to
public offerings with respect to the Issuer's or Insilco's common stock
registered on Form S-8; provided that no Default or Event of Default
shall have occurred and be continuing immediately after any such
payment of dividends;
(m) any other Restricted Payment which, together with all other
Restricted Payments made pursuant to this clause (m) since the date of
the Indenture, does not exceed $25.0 million (in each case, after
giving effect to all subsequent reductions in the amount of any
Restricted Investment made pursuant to this clause (m) either as a
result of (i) the repayment or disposition thereof for cash or (ii) the
redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary
(valued proportionate to the Issuer's equity interest in such
Subsidiary at the time of such redesignation at the fair market value
of the net assets of such Subsidiary at the time of such
redesignation), in the case of clause (i) and (ii), not to exceed the
amount of such Restricted Investment previously made pursuant to this
clause (m)) provided that no Default or Event of Default shall have
occurred and be continuing immediately after making such Restricted
Payment;
(n) the pledge by the Issuer of the Capital Stock of an Unrestricted
Subsidiary of the Issuer to secure Non-Recourse Debt of such
Unrestricted Subsidiary;
(o) the purchase, redemption or other acquisition or retirement for
value of any Equity Interests of any Restricted Subsidiary issued after
the date of the Indenture, provided that the aggregate price paid for
any such repurchased, redeemed, acquired or retired Equity Interests
shall not exceed the sum of (i) the amount of cash and Cash Equivalents
received by such Restricted Subsidiary from the issue or sale thereof
and (ii) any accrued dividends thereon the payment of which would be
permitted pursuant to clause (j) above;
(p) any Investment in an Unrestricted Subsidiary that is funded by
Qualified Proceeds received by the Issuer on or after the date of the
Indenture from contributions to the Issuer's capital or from the issue
and sale on or after the date of the Indenture of Equity Interests of
the Issuer or of Disqualified Stock or convertible debt securities to
the extent they have been converted into such Equity Interests (other
than Equity Interests, Disqualified Stock or convertible debt
securities sold to a Subsidiary of the Issuer and other than
Disqualified Stock or convertible debt securities that have been
converted into Disqualified Stock) in an amount (measured at the time
such Investment is made and without giving effect to subsequent changes
in value) that does not exceed the amount of such Qualified Proceeds;
and
(q) distributions or payments of Receivables Fees.
The Board of Directors may designate any Restricted Subsidiary (other than
Insilco) to be an Unrestricted Subsidiary if such designation would not cause a
Default. For purposes of making such designation, all outstanding Investments by
the Issuer and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Restricted Investments in an amount
equal to the greater of (i) the net book value of such Investments at the time
of such designation and (ii) the fair market value of such Investments at the
time of such designation. Such designation will only be permitted if such
Restricted Investment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
The amount of (i) all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Issuer or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment and (ii)
Qualified Proceeds (other than cash) shall be the fair market value on the date
of receipt thereof by the Issuer of such Qualified Proceeds. The fair market
value of any non-cash Restricted Payment in excess of $1.0 million shall be
determined by the Board of Directors whose resolution with respect thereto shall
be delivered to the Trustee. Not later than the date of making any Restricted
Payment that exceeds $2.0 million, the Issuer shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by the covenant
"Restricted Payments" were computed.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that (a) the Issuer will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Indebtedness), (b) the Issuer will not, and
will not permit any of its Restricted Subsidiaries to, issue any shares of
Disqualified Stock and (c) the Issuer will not permit any of its Restricted
Subsidiaries to issue any shares of preferred stock; provided that the Issuer or
any Restricted Subsidiary may incur Indebtedness (including Acquired
Indebtedness) or issue shares of Disqualified Stock if the Fixed Charge Coverage
Ratio for the Issuer's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock is
issued would have been at least 1.5 to 1, determined on a consolidated pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred, or the Disqualified Stock had
been issued, as the case may be, at the beginning of such four-quarter period.
The Indenture also provides that the Issuer will not incur any Indebtedness
that is contractually subordinated in right of payment to any other Indebtedness
of the Issuer unless such Indebtedness is also contractually subordinated in
right of payment to the Senior Discount Notes on substantially identical terms;
provided that no Indebtedness of the Issuer shall be deemed to be contractually
subordinated in right of payment to any other Indebtedness of the Issuer solely
by virtue of being unsecured.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Indebtedness"):
(i) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Indebtedness under the Existing Credit Facility;
provided that the aggregate principal amount of all Indebtedness (with
letters of credit being deemed to have a principal amount equal to the
maximum potential liability of the Issuer and such Restricted
Subsidiaries thereunder) then classified as having been incurred in
reliance upon this clause (i) that remains outstanding under the
Existing Credit Facility (together with any outstanding Indebtedness
then classified as Permitted Refinancing Indebtedness to the extent the
proceeds of which were used to refinance any Indebtedness classified at
the time of such refinancing as (x) having been incurred in reliance
upon this clause (i) or (y) Permitted Refinancing Indebtedness
described in the preceding clause (x) or this clause (y)) after giving
effect to such incurrence does not exceed an amount equal to $250.0
million (it being understood that the use of the defined term Permitted
Refinancing Indebtedness in this clause (i) does not affect the defined
term "Existing Credit Facility" or the types of indebtedness that may
be incurred thereunder);
(ii) the incurrence by the Issuer and its Restricted Subsidiaries
of Existing Indebtedness;
(iii) the incurrence by the Issuer of Indebtedness represented by
the Senior Discount Notes and the Indenture;
(iv) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Expenditure
Indebtedness, Capital Lease Obligations or purchase money obligations,
in each case, incurred for the purpose of financing all or any part of
the purchase price or cost of construction or improvement of property,
plant or equipment used in the business of the Issuer or such
Restricted Subsidiary, in an aggregate principal amount (or accreted
value, as applicable), including any Permitted Refinancing Indebtedness
incurred to refund, refinance or replace any such Indebtedness, not to
exceed $40.0 million outstanding after giving effect to such
incurrence;
(v) Indebtedness arising from agreements of the Issuer or any
Restricted Subsidiary providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred or
assumed in connection with the disposition of any business, assets or a
Subsidiary, other than guarantees of Indebtedness incurred by any
Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such acquisition;
provided that (A) such Indebtedness is not reflected on the balance
sheet of the Issuer or any Restricted Subsidiary (contingent
obligations referred to in a footnote or footnotes to financial
statements and not otherwise reflected on the balance sheet will not be
deemed to be reflected on such balance sheet for purposes of this
clause (A)) and (B) the maximum assumable liability in respect of such
Indebtedness shall at no time exceed the gross proceeds including
non-cash proceeds (the fair market value of such non-cash proceeds
being measured at the time received and without giving effect to any
subsequent changes in value) actually received by the Issuer and/or
such Restricted Subsidiary in connection with such disposition;
(vi) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or
the net proceeds of which are used to refund, refinance or replace
Indebtedness (other than intercompany Indebtedness) that was permitted
by the Indenture to be incurred;
(vii) the incurrence by the Issuer or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Issuer
and/or any of its Restricted Subsidiaries; provided that (i) if the
Issuer is the obligor on such Indebtedness and such Indebtedness is
owed to a Subsidiary other than Insilco or a Subsidiary of Insilco,
such Indebtedness is expressly subordinated to the prior payment in
full in cash of all Obligations with respect to the Senior Discount
Notes and (ii)(A) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a Person
other than the Issuer or a Restricted Subsidiary thereof and (B) any
sale or other transfer of any such Indebtedness to a Person that is not
either the Issuer or a Restricted Subsidiary thereof shall be deemed,
in each case, to constitute an incurrence of such Indebtedness by the
Issuer or such Restricted Subsidiary, as the case may be, that was not
permitted by this clause (vii);
(viii) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose
of fixing or hedging (A) interest rate risk with respect to any
floating rate Indebtedness that is permitted by the terms of this
Indenture to be outstanding and (B) exchange rate risk with respect to
agreements or Indebtedness of such Person payable denominated in a
currency other than U.S. dollars, provided that such agreements do not
increase the Indebtedness of the obligor outstanding at any time other
than as a result of fluctuations in foreign currency exchange rates or
interest rates or by reason of fees, indemnities and compensation
payable thereunder;
(ix) the guarantee by the Issuer or any of its Restricted
Subsidiaries of Indebtedness of the Issuer or a Restricted Subsidiary
of the Issuer that was permitted to be incurred by another provision of
this covenant;
(x) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Acquired Indebtedness in an aggregate principal amount
(or accreted value, as applicable), including any Permitted
Indebtedness incurred to refund, refinance or replace any such
Indebtedness, not to exceed $25.0 million outstanding after giving
effect to such incurrence;
(xi) obligations in respect of performance and surety bonds and
completion guarantees provided by the Issuer or any Restricted
Subsidiary in the ordinary course of business;
(xii) the incurrence by the Issuer or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal
amount (or accreted value, as applicable) outstanding after giving
effect to such incurrence, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any Indebtedness
incurred pursuant to this clause (xii), not to exceed $50.0 million;
and
(xiii) any Indebtedness or other liabilities in connection with
obligations to pay premiums for corporate life insurance policies in an
aggregate amount not to exceed the aggregate cash value of such
policies.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (i) through (xiii)
above or is entitled to be incurred pursuant to the first paragraph of this
covenant, the Issuer shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this covenant and such item of
Indebtedness will be treated as having been incurred pursuant to only one of
such clauses or pursuant to the first paragraph hereof. In addition, the Issuer
may, at any time, change the classification of an item of Indebtedness (or any
portion thereof) to any other clause or to the first paragraph hereof, provided
that the Issuer would be permitted to incur such item of Indebtedness (or such
portion thereof) pursuant to such other clause or the first paragraph hereof, as
the case may be, at such time of reclassification. Accrual of interest,
accretion or amortization of original issue discount will not be deemed to be an
incurrence of Indebtedness for purposes of this covenant. In addition, in the
event the Issuer repays, redeems or otherwise retires any Indebtedness portions
of which are then classified as having been incurred under more than one of the
categories of Permitted Indebtedness described above or pursuant to the first
paragraph of this covenant and any category of Permitted Indebtedness, the
Issuer shall, in its sole discretion, designate which portions of such
Indebtedness were retired.
Indebtedness under the Existing Credit Facility outstanding on the date on
which Senior Discount Notes were first issued and authenticated was not incurred
on such date in reliance on clause (i) of the definition of "Permitted
Indebtedness." As a result, the Issuer will be permitted to incur significant
additional secured indebtedness under clause (i) of the definition of "Permitted
Indebtedness." See "Risk Factors."
Liens
The Indenture provides that the Issuer will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien, other than a Permitted Lien, that secures obligations
under any Pari Passu Indebtedness or Subordinated Indebtedness of the Issuer on
any asset or property now owned or hereafter acquired by the Issuer or any of
its Restricted Subsidiaries, or any income or profits therefrom or assign or
convey any right to receive income therefrom, unless the Senior Discount Notes
are equally and ratably secured with the obligations so secured until such time
as such obligations are no longer secured by a Lien.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture provides that the Issuer will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (a)(i) pay dividends or make any
other distributions to the Issuer or any of its Restricted Subsidiaries (A) on
its Capital Stock or (B) with respect to any other interest or participation in,
or measured by, its profits, or (ii) pay any Indebtedness owed to the Issuer or
any of its Restricted Subsidiaries, (b) make loans or advances to the Issuer or
any of its Restricted Subsidiaries or (c) transfer any of its properties or
assets to the Issuer or any of its Restricted Subsidiaries. However, the
foregoing restrictions will not apply to encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness as in effect on the date of the
Indenture, (b) the terms of any Indebtedness or Disqualified Stock permitted by
the Indenture to be incurred by any Restricted Subsidiary of the Issuer, (c) the
Indenture and the Senior Discount Notes, (d) the Existing Credit Facility, (e)
applicable law and any applicable rule, regulation or order, (f) any agreement
or instrument of a Person acquired by the Issuer or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the extent
created in contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so acquired,
provided that, in the case of Indebtedness, such Indebtedness was permitted by
the terms of the Indenture to be incurred, (g) customary non-assignment
provisions in leases entered into in the ordinary course of business and
consistent with past practices, (h) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (f) above on the property so acquired, (i) contracts
for the sale of assets, including, without limitation, customary restrictions
with respect to a Subsidiary pursuant to an agreement that has been entered into
for the sale or disposition of all or substantially all of the Capital Stock or
assets of such Subsidiary, (j) Permitted Refinancing Indebtedness, provided that
the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are, in the good faith judgment of the Issuer's Board
of Directors, not materially less favorable, taken as a whole, to the Holders of
the Senior Discount Notes than those contained in the agreements governing the
Indebtedness being refinanced, (k) secured Indebtedness otherwise permitted to
be incurred pursuant to the covenants described under "--Incurrence of
Indebtedness and Issuance of Preferred Stock" and "--Liens" that limit the right
of the debtor to dispose of the assets securing such Indebtedness, (l)
restrictions on cash or other deposits or net worth imposed by customers under
contracts entered into in the ordinary course of business, (m) customary
provisions in joint venture agreements and other similar agreements entered into
in the ordinary course of business, and (n) restrictions created in connection
with any Receivables Facility that, in the good faith determination of the Board
of Directors of the Issuer, are necessary or advisable to effect such
Receivables Facility.
The Existing Credit Facility, the 10 1/4% Notes and the 12% Notes
significantly restrict, and the New Credit Facility is expected to significantly
restrict, Insilco's ability to pay dividends or make other distributions to the
Issuer. The existence of such restrictions could have an adverse effect on the
Issuer's ability to pay interest and principal on the Senior Discount Notes. See
"Risk Factors."
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Issuer may not consolidate or merge with or
into (whether or not the Issuer is the surviving corporation), or sell, assign,
transfer, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another Person
unless (a) the Issuer is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Issuer) or to
which such sale, assignment, transfer, conveyance or other disposition shall
have been made is a corporation organized or existing under the laws of the
United States, any state thereof or the District of Columbia, (b) the Person
formed by or surviving any such consolidation or merger (if other than the
Issuer) or the Person to which such sale, assignment, transfer, conveyance or
other disposition shall have been made assumes all the obligations of the Issuer
under the Registration Rights Agreement, the Senior Discount Notes and the
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee, (c) immediately after such transaction no Default or Event of
Default exists and (d) the Issuer or the Person formed by or surviving any such
consolidation or merger (if other than the Issuer), or to which such sale,
assignment, transfer, conveyance or other disposition shall have been made (i)
will, at the time of such transaction and after giving pro forma effect thereto
as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock" or (ii) would (together with its
Restricted Subsidiaries) have a higher Fixed Charge Coverage Ratio immediately
after such transaction (after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter period)
than the Fixed Charge Coverage Ratio of the Issuer and its Restricted
Subsidiaries immediately prior to such transaction. The foregoing clause (d)
will not prohibit (a) a merger between the Issuer and an Affiliate of the Issuer
created for the purpose of holding the Capital Stock of the Issuer, (b) a merger
between the Issuer and a Wholly Owned Restricted Subsidiary or (c) a merger
between the Issuer and an Affiliate incorporated solely for the purpose of
reincorporating the Issuer in another State of the United States so long as, in
each case, the amount of Indebtedness of the Issuer and its Restricted
Subsidiaries is not increased thereby. The Indenture provides that the Company
shall not lease all or substantially all of its assets to any Person.
Transactions with Affiliates
The Indenture provides that the Issuer will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate of the Issuer (each of the foregoing, an "Affiliate
Transaction"), unless (a) such Affiliate Transaction is on terms that are no
less favorable to the Issuer or such Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Issuer or such Restricted
Subsidiary with an unrelated Person and (b) the Issuer delivers to the Trustee,
with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $7.5 million, either
(i) a resolution of the Board of Directors set forth in an Officer's Certificate
certifying that such Affiliate Transaction complies with clause (a) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors or (ii) an opinion as to the
fairness to the Holders of such Affiliate Transaction from a financial point of
view issued by an accounting, appraisal or investment banking firm of national
standing.
Notwithstanding the foregoing, the following items shall not be deemed to
be Affiliate Transactions: (a) customary directors' fees, indemnification or
similar arrangements or any employment agreement or other compensation plan or
arrangement entered into by the Issuer or any of its Restricted Subsidiaries in
the ordinary course of business (including ordinary course loans to employees
not to exceed (i) $5.0 million outstanding in the aggregate at any time and (ii)
$2.0 million to any one employee) and consistent with the past practice of the
Issuer or such Restricted Subsidiary; (b) transactions between or among the
Issuer and/or its Restricted Subsidiaries; (c) payments of customary fees by the
Issuer or any of its Restricted Subsidiaries to DLJMB and its Affiliates made
for any financial advisory, financing, underwriting or placement services or in
respect of other investment banking activities, including, without limitation,
in connection with acquisitions or divestitures which are approved by a majority
of the Board of Directors in good faith; (d) any agreement as in effect on the
date of the Indenture or any amendment thereto (so long as such amendment is not
disadvantageous to the Holders of the Senior Discount Notes in any material
respect) or any transaction contemplated thereby; (e) payments and transactions
in connection with the Recapitalization (including underwriting discounts and
commissions in connection therewith) and the application of the proceeds
thereof, and the payment of the fees and expenses with respect thereto; (f)
Restricted Payments that are permitted by the provisions of the Indenture
described under the caption "--Restricted Payments" and any Permitted
Investments; (g) sales of accounts receivable, or participations therein, in
connection with any Receivables Facility and (h) any payments pursuant to the
terms of the Existing Credit Facility.
Sale and Leaseback Transactions
The Indenture provides that the Issuer will not, and will not permit any of
its Restricted Subsidiaries to, enter into any sale and leaseback transaction
the Attributable Indebtedness in respect of which is in excess of the aggregate
sum of $20 million from the date of the Indenture; provided that the Issuer or
any Restricted Subsidiary may enter into a sale and leaseback transaction in
excess of said sum if (a) the Issuer or such Restricted Subsidiary, as the case
may be, could have (i) incurred Indebtedness in an amount equal to the
Attributable Indebtedness relating to such sale and leaseback transaction
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock" and (ii) incurred a Lien to secure
such Indebtedness pursuant to the covenant described under the caption
"--Liens," (b) for any transaction involving in excess of $2 million, the gross
cash proceeds of such sale and leaseback transaction are at least equal to the
fair market value (as determined in good faith by the Board of Directors and set
forth in an Officers' Certificate delivered to the Trustee) of the property that
is the subject of such sale and leaseback transaction and (c) the transfer of
assets in such sale and leaseback transaction is permitted by, and the Issuer
applies the proceeds of such transaction in compliance with, the covenant
described under the caption "--Asset Sales."
Accounts Receivable Facility
The Indenture provides that no Accounts Receivable Subsidiary will incur
any Indebtedness if immediately after giving effect to such incurrence the
aggregate outstanding Indebtedness of all Accounts Receivable Subsidiaries
(excluding any Indebtedness owed to the Issuer or any Restricted Subsidiary)
would exceed $50.0 million.
No Waiver of Transfer Restrictions
The Indenture provides that the Issuer will not modify, amend, waive or
otherwise fail to enforce the provisions of the Unit Lock-Up Agreement.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Senior Discount Notes are outstanding, the Issuer will furnish to
the Holders of Senior Discount Notes (a) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Issuer were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Issuer's certified independent accountants and (b) all
current reports that would be required to be filed with the Commission on Form
8-K if the Issuer were required to file such reports, in each case, within the
time periods specified in the Commission's rules and regulations. In addition,
following the consummation of the exchange offer contemplated by the
Registration Rights Agreement, whether or not required by the rules and
regulations of the Commission, the Issuer will file a copy of all such
information and reports with the Commission for public availability within the
time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Issuer has agreed that, for so long as any Senior Discount Notes remain
outstanding, it will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Events of Default and Remedies
The Indenture provides that each of the following constitutes an Event of
Default: (a) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Senior Discount Notes; (b) default in
payment when due of the principal of or premium, if any, on the Senior Discount
Notes at maturity, upon redemption or otherwise; (c) failure by the Issuer or
any of its Restricted Subsidiaries for 30 days after receipt of notice from the
Trustee or Holders of at least 25% in principal amount at maturity of the Senior
Discount Notes then outstanding to comply with the provisions described under
the captions "Repurchase at the Option of Holders--Change of Control," "--Asset
Sales;" or "Merger, Consolidation or Sale of Assets"; (d) failure by the Issuer
for 60 days after notice from the Trustee or the Holders of at least 25% in
principal amount at maturity of the Senior Discount Notes then outstanding to
comply with any of its other agreements in the Indenture or the Senior Discount
Notes; (e) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Issuer or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by the Issuer or any of its Restricted
Subsidiaries), whether such Indebtedness or guarantee now exists, or is created
after the date of the Indenture, which default (i) is caused by a failure to pay
Indebtedness at its stated final maturity (after giving effect to any applicable
grace period provided in such Indebtedness) (a "Payment Default") or (ii)
results in the acceleration of such Indebtedness prior to its stated final
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $15.0 million or more; (f) failure by the Issuer or any
of its Restricted Subsidiaries to pay final judgments aggregating in excess of
$15.0 million (net of any amounts with respect to which a reputable and
creditworthy insurance company has acknowledged liability in writing), which
judgments are not paid, discharged or stayed for a period of 60 days; and (g)
certain events of bankruptcy or insolvency with respect to the Issuer or any of
its Restricted Subsidiaries that is a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount at maturity of the then outstanding
Senior Discount Notes may declare all the Senior Discount Notes to be due and
payable immediately. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency with respect to
the Issuer or any Significant Subsidiary, all outstanding Senior Discount Notes
will become due and payable without further action or notice. Upon any
acceleration of maturity of the Senior Discount Notes, all principal of and
accrued interest on (if on or after August 15, 2003) or Accreted Value of (if
prior to August 15, 2003) the Senior Discount Notes shall be due and payable
immediately. Holders of the Senior Discount Notes may not enforce the Indenture
or the Senior Discount Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount
at maturity of the then outstanding Senior Discount Notes may direct the Trustee
in its exercise of any trust or power. The Trustee may withhold from Holders of
the Senior Discount Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount at maturity of the
Senior Discount Notes then outstanding by notice to the Trustee may on behalf of
the Holders of all of the Senior Discount Notes waive any existing Default or
Event of Default and its consequences under the Indenture except a continuing
Default or Event of Default in the payment of interest on, or the principal of,
the Senior Discount Notes.
The Issuer is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Issuer is required upon
becoming aware of any Default or Event of Default to deliver to the Trustee a
statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Issuer,
as such, shall have any liability for any obligations of the Issuer under the
Senior Discount Notes or the Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of Senior
Discount Notes by accepting a Senior Discount Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Senior Discount Notes. Such waiver may not be effective to waive liabilities
under the federal securities laws, and it is the view of the Commission that
such a waiver is against public policy.
Legal Defeasance and Covenant Defeasance
The Issuer may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Senior Discount Notes
("Legal Defeasance") except for (a) the rights of Holders of outstanding Senior
Discount Notes to receive payments in respect of the principal of, premium, if
any, and interest and Liquidated Damages, if any, on such Senior Discount Notes
when such payments are due from the trust referred to below, (b) the Issuer's
obligations with respect to the Senior Discount Notes concerning issuing
temporary Senior Discount Notes, registration of Senior Discount Notes,
mutilated, destroyed, lost or stolen Senior Discount Notes and the maintenance
of an office or agency for payment and money for security payments held in
trust, (c) the rights, powers, trusts, duties and immunities of the Trustee, and
the Issuer's obligations in connection therewith and (d) the Legal Defeasance
provisions of the Indenture. In addition, the Issuer may, at its option and at
any time, elect to have the obligations of the Issuer released with respect to
certain covenants that are described in the Indenture ("Covenant Defeasance")
and thereafter any omission to comply with such obligations shall not constitute
a Default or Event of Default with respect to the Senior Discount Notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default and Remedies" will no longer constitute an Event of Default
with respect to the Senior Discount Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (a)
the Issuer must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Senior Discount Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest and
Liquidated Damages, if any, on the outstanding Senior Discount Notes on the
stated maturity or on the applicable redemption date, as the case may be, and
the Issuer must specify whether the Senior Discount Notes are being defeased to
maturity or to a particular redemption date, (b) in the case of Legal
Defeasance, the Issuer shall have delivered to the Trustee an opinion of counsel
in the United States reasonably acceptable to the Trustee confirming that (i)
the Issuer has received from, or there has been published by, the Internal
Revenue Service a ruling or (ii) since the date of the Indenture, there has been
a change in the applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm that, subject to
customary assumptions and exclusions, the Holders of the outstanding Senior
Discount Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred, (c) in the
case of Covenant Defeasance, the Issuer shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that, subject to customary assumptions and exclusions, the Holders of
the outstanding Senior Discount Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Covenant Defeasance and will
be subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Covenant Defeasance had not
occurred, (d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) or, insofar
as Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 123rd day after the date of deposit, (e) such
Legal Defeasance or Covenant Defeasance will not result in a breach or violation
of, or constitute a default under, any material agreement or instrument (other
than the Indenture) to which the Issuer or any of its Subsidiaries is a party or
by which the Issuer or any of its Subsidiaries is bound, (f) the Issuer must
have delivered to the Trustee an opinion of counsel to the effect that, subject
to customary assumptions and exclusions, after the 123rd day following the
deposit, the trust funds will not be subject to the effect of Section 547 of the
United States Bankruptcy Code or any analogous New York State law provision or
any other applicable federal or New York bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally, (g) the Issuer must
deliver to the Trustee an Officers' Certificate stating that the deposit was not
made by the Issuer with the intent of preferring the Holders of Senior Discount
Notes over the other creditors of the Issuer with the intent of defeating,
hindering, delaying or defrauding creditors of the Issuer or others, and (h) the
Issuer must deliver to the Trustee an Officers' Certificate and an opinion of
counsel (which opinion may be subject to customary assumptions and exclusions),
each stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
Transfer and Exchange
A Holder may transfer or exchange Senior Discount Notes in accordance with
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuer may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuer is not required to transfer or exchange
any Senior Discount Note selected for redemption. Also, the Issuer is not
required to transfer or exchange any Senior Discount Note for a period of 15
days before a selection of Senior Discount Notes to be redeemed. The registered
Holder of a Senior Discount Note will be treated as the owner of it for all
purposes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture and
the Senior Discount Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount at maturity of the Senior
Discount Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, Senior Discount Notes), and any existing default or compliance with any
provision of the Indenture or the Senior Discount Notes may be waived with the
consent of the Holders of a majority in principal amount at maturity of the then
outstanding Senior Discount Notes (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, Senior Discount Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Senior Discount Notes held by a non-consenting Holder) (a)
reduce the principal amount at maturity of Senior Discount Notes whose Holders
must consent to an amendment, supplement or waiver, (b) reduce the principal of
or change the fixed maturity of any Senior Discount Note or alter the provisions
with respect to the redemption of the Senior Discount Notes (other than the
provisions described under the caption "--Repurchase at the Option of Holders")
or amend or modify the calculation of the Accreted Value so as to reduce the
amount of the Accreted Value of the Senior Discount Notes, (c) reduce the rate
of or change the time for payment of interest on any Senior Discount Note, (d)
waive a Default or Event of Default in the payment of principal of or premium,
if any, or interest or Liquidated Damages, if any, on the Senior Discount Notes
(except a rescission of acceleration of the Senior Discount Notes by the Holders
of at least a majority in aggregate principal amount at maturity of the Senior
Discount Notes and a waiver of the payment default that resulted from such
acceleration), (e) make any Senior Discount Note payable in money other than
that stated in the Senior Discount Notes, (f) make any change in the provisions
of the Indenture relating to waivers of past Defaults, (g) waive a redemption
payment with respect to any Senior Discount Note (other than the provisions
described under the caption "--Repurchase at the Option of Holders"), (h) make
any change in the foregoing amendment and waiver provisions, (i) modify any
provision of the Indenture with respect to the priority of the Senior Discount
Notes in right of payment or (j) make any change to the right of Holders to
waive an existing Default or Event of Default or the right of Holders to receive
payments of principal, premium, if any, and interest and Liquidated Damages, if
any, on the Senior Discount Notes. Notwithstanding the foregoing, any amendment
to or waiver of the covenant described under the caption "--Repurchase at the
Option of Holders--Change of Control" will require the consent of the Holders of
at least two-thirds in aggregate principal amount at maturity of the Senior
Discount Notes then outstanding if such amendment would materially adversely
affect the rights of Holders of Senior Discount Notes.
Notwithstanding the foregoing, without the consent of any Holder of Senior
Discount Notes, the Issuer and the Trustee may amend or supplement the Indenture
or the Senior Discount Notes to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Senior Discount Notes in addition to or in place of
certificated Senior Discount Notes, to provide for the assumption of the
Issuer's obligations to Holders of Senior Discount Notes in the case of a merger
or consolidation or sale of all or substantially all of the Issuer's assets, to
make any change that would provide any additional rights or benefits to the
Holders of Senior Discount Notes or that does not materially adversely affect
the legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act, to provide for guarantees of the
Senior Discount Notes or to provide for the issuance of additional Senior
Discount Notes in accordance with the limitations set forth in the Indenture.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Issuer, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount at maturity of the then
outstanding Senior Discount Notes will have the right to direct the time, method
and place of conducting any proceeding for exercising any remedy available to
the Trustee, subject to certain exceptions. The Indenture provides that in case
an Event of Default shall occur (which shall not be cured), the Trustee will be
required, in the exercise of its power, to use the degree of care of a prudent
man in the conduct of his own affairs. Subject to such provisions, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Senior Discount Notes, unless such
Holder shall have offered to the Trustee security and indemnity satisfactory to
it against any loss, liability or expense.
Book-Entry; Delivery and Form
The certificates representing the Exchange Notes will be issued in fully
registered form, without coupons. Except as described below, the Exchange Notes
will be deposited with, or on behalf of, the Depository Trust Company, New York,
New York ("DTC"), and registered in the name of Cede & Co. ("Cede") as DTC's
nominee, in the form of a global Exchange Note certificate (the "Global Exchange
Note").
The Global Exchange Note. The Company expects that pursuant to procedures
established by DTC (a) upon deposit of the Global Exchange Note, DTC or its
custodian will credit on its internal system interests in the Global Exchange
Notes to the accounts of persons who have accounts with DTC ("Participants") and
(b) ownership of the Global Exchange Note will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by DTC or
its nominee (with respect to interests of Participants) and the records of
Participants (with respect to interests of persons other than Participants).
Ownership of beneficial interests in the Global Exchange Note will be limited to
Participants or persons who hold interests through Participants.
So long as DTC or its nominee is the registered owner or holder of the
Exchange Notes, DTC or such nominee will be considered the sole owner or holder
of the Exchange Notes represented by the Global Exchange Note for all purposes
under the Indenture. No beneficial owner of an interest in the Global Exchange
Note will be able to transfer such interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture with respect
to the Exchange Notes.
Payments of the principal of or premium and interest on the Global Exchange
Note will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of Holdings, the Trustee or any paying agent under the
Indenture will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Exchange Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
Holdings expects that DTC or its nominee, upon receipt of any payment of
the principal of or premium and interest on the Global Exchange Note, will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Exchange
Note as shown on the records of DTC or its nominee. The Company also expects
that payments by Participants to owners of beneficial interests in the Global
Exchange Note held through such Participants will be governed by standing
instructions and customary practice as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such Participants.
Transfers between Participants in DTC will be effected in accordance with
DTC rules and will be settled in immediately available funds. If a holder
requires physical delivery of a Certificated Exchange Note for any reason,
including to sell Exchange Notes to persons in states which require physical
delivery of the Exchange Notes or to pledge such securities, such holder must
transfer its interest in the Global Exchange Note in accordance with the normal
procedures of DTC and with the procedures set forth in the Indenture.
DTC has advised the Company that DTC will take any action permitted to be
taken by a holder of Exchange Notes (including the presentation of Exchange
Notes for exchange as described below) only at the direction of one or more
Participants to whose account at DTC interests in the Global Exchange Note are
credited and only in respect of such portion of the aggregate principal amount
of Exchange Notes as to which such Participant or Participants has or have given
such direction. However, if there is an Event of Default under the Indenture,
DTC will exchange the Global Exchange Note for Certificated Exchange Notes,
which it will distribute to its Participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interest in the Global Exchange Notes among Participants, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither Holdings nor the Trustee will have any
responsibility for the performance by DTC or its Participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Exchange Notes. Interests in the Global Exchange Notes will be
exchangeable or transferable, as the case may be, for Certificated Exchange
Notes if (i) DTC notifies Holdings that it is unwilling or unable to continue as
depositary for such Global Exchange Notes, or DTC ceases to be a "clearing
agency" registered under the Exchange Act, and a successor depositary is not
appointed by Holdings within 90 days, or (ii) an Event of Default has occurred
and is continuing with respect to such Exchange Notes. Upon the occurrence of
any of the events described in the preceding sentence, the Company will cause
the appropriate Certificated Exchange Notes to be delivered.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Accounts Receivable Subsidiary" means an Unrestricted Subsidiary of the
Issuer or any of its Restricted Subsidiaries to which the Issuer or any of its
Restricted Subsidiaries sells any of its accounts receivable pursuant to a
Receivables Facility.
"Accreted Value" means, as of any date of determination prior to August 15,
2003, with respect to any Senior Discount Note, the sum of (a) the initial
offering price (which shall be calculated by discounting the aggregate principal
amount at maturity of such Senior Discount Note at a rate of 14% per annum,
compounded semi-annually on each February 15 and August 15 from August 15, 2003
to the date of issuance) of such Senior Discount Note and (b) the portion of the
excess of the principal amount at maturity of such Senior Discount Note over
such initial offering price which shall have been accreted thereon through such
date, such amount to be so accreted on a daily basis at a rate of 14% per annum
of the initial offering price of such Senior Discount Note, compounded
semi-annually on each February 15 and August 15 from the date of issuance of the
Senior Discount Notes through the date of determination, computed on the basis
of a 360-day year of twelve 30-day months.
"Acquired Indebtedness" means, with respect to any specified Person, (a)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (b) Indebtedness secured by a Lien
encumbering an asset acquired by such specified Person at the time such asset is
acquired by such specified Person.
"Adjusted Consolidated Net Income" means, which respect to any Person for
any period, the Consolidated Net Income of such Person for such period plus, to
the extent deducted in calculating Consolidated Net Income, 100% of non-cash
compensation expense for such period incurred by such Person and its Restricted
Subsidiaries related to stock options, stock appreciation rights, phantom stock
units or other Equity Interests granted to the employees or directors of such
Person and its Restricted Subsidiaries.
"Affiliate" of any specified Person means any other Person which, directly
or indirectly, controls, is controlled by or is under direct or indirect common
control with, such specified Person. For purposes of this definition, "control,"
when used with respect to any Person, means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Sale" means (a) the sale, lease, conveyance, disposition or other
transfer (a "disposition") of any properties, assets or rights (including,
without limitation, by way of a sale and leaseback) (provided that the sale,
lease, conveyance or other disposition of all or substantially all of the assets
of the Issuer and its Subsidiaries taken as a whole will be governed by the
provisions of the Indenture described under the caption "--Change of Control"
and/or the provisions described under the caption "--Merger, Consolidation or
Sale of Assets" and not by the provisions of the Asset Sale covenant), and (b)
the issuance, sale or transfer by the Issuer or any of its Restricted
Subsidiaries of Equity Interests of any of the Issuer's Restricted Subsidiaries,
in the case of either clause (a) or (b), whether in a single transaction or a
series of related transactions (i) that have a fair market value in excess of
$5.0 million or (ii) for net proceeds in excess of $5.0 million. Notwithstanding
the foregoing, the following items shall not be deemed to be Asset Sales: (a)
dispositions in the ordinary course of business; (b) a disposition of assets
(including, without limitation, capital stock) by the Issuer to a Restricted
Subsidiary or by a Restricted Subsidiary to the Issuer or to another Restricted
Subsidiary; (c) a disposition of Equity Interests by a Restricted Subsidiary to
the Issuer or to another Restricted Subsidiary; (d) the sale and leaseback of
any assets within 180 days of the acquisition thereof; (e) foreclosures on
assets; (f) any exchange of like property pursuant to Section 1031 of the
Internal Revenue Code of 1986, as amended, for use in a Permitted Business; (g)
any sale of Equity Interests in, or Indebtedness or other securities of, an
Unrestricted Subsidiary; (h) a Permitted Investment or a Restricted Payment that
is permitted by the covenant described under the caption "--Restricted
Payments"; and (i) sales of accounts receivable, or participations therein, in
connection with any Receivables Facility.
"Attributable Indebtedness" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Capital Expenditure Indebtedness" means Indebtedness incurred by any
Person to finance the purchase or construction or any property or assets
acquired or constructed by such Person which have a useful life of more than one
year so long as (a) the purchase or construction price for such property or
assets is included in "addition to property, plant or equipment" in accordance
with GAAP, (b) the acquisition or construction of such property or assets is not
part of any acquisition of a Person or line of business and (c) such
Indebtedness is incurred within 90 days of the acquisition or completion of
construction of such property or assets.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (a) in the case of a corporation, corporate stock,
(b) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (c) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited) and (d) any
other interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, the issuing
Person.
"Cash Equivalents" means (i) Government Securities, (ii) any certificate of
deposit maturing not more than 365 days after the date of acquisition issued by,
or demand deposit or time deposit of, an Eligible Institution or any lender
under the Existing Credit Facility, (iii) commercial paper maturing not more
than 365 days after the date of acquisition of an issuer (other than an
Affiliate of the Issuer) with a rating, at the time as of which any investment
therein is made, of "A-3" (or higher) according to S&P or "P-2" (or higher)
according to Moody's or carrying an equivalent rating by a nationally recognized
rating agency if both of the two named rating agencies cease publishing ratings
of investments, (iv) any bankers acceptances of money market deposit accounts
issued by an Eligible Institution, (v) any fund investing exclusively in
investments of the types described in clauses (i) through (iv) above and (vi) in
the case of any Subsidiary organized or having its principal place of business
outside the United States, investments denominated in the currency of the
jurisdiction in which such Subsidiary is organized or has its principal place of
business which are similar to the items specified in clauses (i) through (v)
above (including without limitation any deposit with a bank that is a lender to
any Restricted Subsidiary).
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person and its Restricted Subsidiaries for
such period plus, to the extent deducted in computing Consolidated Net Income,
(a) an amount equal to any extraordinary or non-recurring loss plus any net loss
realized in connection with an Asset Sale, (b) provision for taxes based on
income or profits of such Person and its Restricted Subsidiaries for such
period, (c) Fixed Charges of such Person for such period, (d) depreciation,
amortization (including amortization of goodwill and other intangibles) and all
other non-cash charges (excluding any such non-cash charge to the extent that it
represents an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Restricted Subsidiaries for such period, (e) other income or
expense net as set forth on the face of such Person's statement of operations,
(f) expenses and charges of the Issuer and Insilco related to the
Recapitalization and the application of the proceeds thereof which are paid,
taken or otherwise accounted for within 120 days of the consummation of the
Mergers, (g) non-cash charges for net periodic post-retirement benefits and (h)
any non-capitalized transaction costs incurred in connection with actual or
proposed financings, acquisition or divestitures (including, but not limited to,
financing and refinancing fees and costs incurred in connection with the
Recapitalization), in each case, on a consolidated basis and determined in
accordance with GAAP. Notwithstanding the foregoing, the provision for taxes
based on the income or profits of, the Fixed Charges of, and the depreciation
and amortization and other non-cash charges of, a Restricted Subsidiary of a
Person shall be added to Consolidated Net Income to compute Consolidated Cash
Flow only to the extent (and in the same proportion) that Net Income of such
Restricted Subsidiary was included in calculating the Consolidated Net Income of
such Person.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication, (a) the interest expense of such Person
and its Restricted Subsidiaries for such period (net of interest income), on a
consolidated basis, determined in accordance with GAAP (including amortization
of original issue discount, non-cash interest payments, the interest component
of all payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments, if any, pursuant to Hedging Obligations; provided that in no event
shall any amortization of deferred financing costs be included in Consolidated
Interest Expense); and (b) the consolidated capitalized interest of such Person
and its Restricted Subsidiaries for such period, whether paid or accrued;
provided, however, that Receivables Fees shall be deemed not to constitute
Consolidated Interest Expense. Notwithstanding the foregoing, the Consolidated
Interest Expense with respect to any Restricted Subsidiary that is not a Wholly
Owned Restricted Subsidiary shall be included only to the extent (and in the
same proportion) that the net income of such Restricted Subsidiary was included
in calculating Consolidated Net Income.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (a) the Net Income (or loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary
thereof, (b) the Net Income (or loss) of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded and (c) the cumulative effect of a change in accounting principles
shall be excluded.
"Existing Credit Facility" means, collectively, the Credit Agreement dated
as of July 3, 1997, as amended pursuant to the First Amendment to Credit
Agreement dated as of August 25, 1997, and a Second Amendment to Credit
Agreement dated as of August 17, 1998, among the Company, certain of its
Subsidiaries, the financial institutions from time to time party thereto as
Lenders and Issuing Banks, DLJ Capital Funding, Inc., in its separate capacity
as syndication agent, The First National Bank of Chicago, in its separate
capacity as documentation agent, and Citicorp USA, Inc., in its separate
capacity as collateral and administrative agent for the Lenders and Issuing
Banks, and the Loan Documents (as defined therein) (or other analogous documents
entered into in connection with any refinancing thereof), in each case as the
same may from time to time be amended, renewed, supplemented or otherwise
modified at the option of the parties thereto, including any credit agreement
increasing the amount that may be borrowed under such agreement or any successor
agreement, whether or not among the same parties; and any other credit agreement
pursuant to which any of the Indebtedness, commitments, Obligations, costs,
expenses, fees, reimbursements and other indemnities payable or owing under the
Existing Credit Facility may be refinanced, restructured, renewed, extended,
refunded or increased, as any such other agreement may from time to time at the
option of the parties thereto be amended, supplemented, renewed or otherwise
modified.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Noncash Consideration" means the fair market value of noncash
consideration received by the Issuer or one of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an Officer's Certificate, setting forth the basis of
such valuation, executed by the principal executive officer and the principal
financial officer of the Issuer, less the amount of cash or Cash Equivalents
received in connection with a sale of such Designated Noncash Consideration.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable), or upon the happening of any event (other than any event solely
within the control of the issuer thereof), matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, is exchangeable for
Indebtedness (except to the extent exchangeable at the option of such Person
subject to the terms of any debt instrument to which such Person is a party) or
redeemable at the option of the holder thereof, in whole or in part, on or prior
to the date on which the Senior Discount Notes mature; provided that any Capital
Stock that would constitute Disqualified Stock solely because the holders
thereof have the right to require the Issuer to repurchase such Capital Stock
upon the occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Issuer
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with the covenant described under
the caption "--Certain Covenants--Restricted Payments," and provided further
that, if such Capital Stock is issued to any plan for the benefit of employees
of the Issuer or its Subsidiaries or by any such plan to such employees, such
Capital Stock shall not constitute Disqualified Stock solely because it may be
required to be repurchased by the Issuer in order to satisfy applicable
statutory or regulatory obligations.
"DLJMB" means DLJ Merchant Banking Partners II, L.P. and its Affiliates.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus not less than $500.0 million or its equivalent in
foreign currency and having a peer group rating of B or better (or the
equivalent thereof) by Thompson Bankwatch, Inc. or having outstanding short-term
debt rated "A-3" or higher according to Standard & Poor's Ratings Group ("S&P")
or "P-2" or higher according to Moody's Investor Services, Inc. ("Moody's") or
carrying an equivalent rating by a nationally recognized rating agency if both
of the two named rating agencies cease publishing ratings of investments.
"Equity Interests" of any Person means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock) of any
Person and any stock appreciation rights or phantom stock units granted to
employees or directors of such Person and its Restricted Subsidiaries.
"Existing Indebtedness" means Indebtedness of the Issuer and its Restricted
Subsidiaries, including Insilco and its Subsidiaries, in existence on the date
of the Indenture, other than Indebtedness under the Existing Credit Facility, if
any, that could not have been incurred on the date of the Indenture pursuant to
the Fixed Charge Coverage Ratio set forth in the first paragraph of the covenant
described under "Incurrence of Indebtedness and Issuance of Preferred Stock" if
such covenant were applicable, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (a) the Consolidated Interest Expense of such Person for
such period and (b) all dividend payments on any series of preferred stock of
such Person (other than dividends payable solely in Equity Interests that are
not Disqualified Stock), in each case, on a consolidated basis and in accordance
with GAAP
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
(exclusive of amounts attributable to discontinued operations, as determined in
accordance with GAAP, or operations and businesses disposed of prior to the
Calculation Date (as defined)) to the Fixed Charges of such Person for such
period (exclusive of amounts attributable to discontinued operations, as
determined in accordance with GAAP, or operations and businesses disposed of
prior to the Calculation Date). In the event that the referent Person or any of
its Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other
than revolving credit borrowings) or issues or redeems preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock and the application of the proceeds
therefrom, as if the same had occurred at the beginning of the applicable
four-quarter reference period and the Consolidated Interest Expense attributable
to interest on any Indebtedness computed on a pro forma basis and bearing a
floating interest rate shall be computed as if the rate in effect on the
Calculation Date (taking into account any Hedging Obligations applicable to such
Indebtedness) had been the applicable rate for the entire period. In addition,
for purposes of making the computation referred to above, acquisitions that have
been made by the Issuer or any of its Subsidiaries, including all mergers or
consolidations and any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of the
four-quarter reference period and Consolidated Cash Flow for such reference
period shall be calculated to include the Consolidated Cash Flow of the acquired
entities on a pro forma basis after giving effect to cost savings resulting from
employee terminations, facilities consolidations and closings, standardization
of employee benefits and compensation practices, consolidation of property,
casualty and other insurance coverage and policies, standardization of sales and
distribution methods, reductions in taxes other than income taxes and other cost
savings reasonably expected to be realized from such acquisition, as determined
in good faith by an officer of the Issuer (regardless of whether such cost
savings could then be reflected in pro forma financial statements under GAAP,
Regulation S-X promulgated by the Commission or any other regulation or policy
of the Commission) and without giving effect to clause (c) of the proviso set
forth in the definition of Consolidated Net Income.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit or
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (a) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (b) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or foreign exchange rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person in respect of borrowed money or evidenced by bonds, notes, debentures or
similar instruments or letters of credit (or reimbursement agreements in respect
thereof) or banker's acceptances or representing Capital Lease Obligations or
the balance deferred and unpaid of the purchase price of any property or
representing any Hedging Obligations, except any such balance that constitutes
an accrued expense or trade payable, if and to the extent any of the foregoing
Indebtedness (other than letters of credit and Hedging Obligations) would appear
as a liability upon a balance sheet of such Person prepared in accordance with
GAAP, as well as all Indebtedness of others secured by a Lien on any asset of
such Person (whether or not such Indebtedness is assumed by such Person) and, to
the extent not otherwise included, the guarantee by such Person of any
Indebtedness of any other Person, provided that Indebtedness shall not include
the pledge by the Issuer of the Capital Stock of an Unrestricted Subsidiary of
the Issuer to secure Non-Recourse Debt of such Unrestricted Subsidiary. The
amount of any Indebtedness outstanding as of any date shall be (a) the accreted
value thereof (together with any interest thereon that is more than 30 days past
due), in the case of any Indebtedness that does not require current payments of
interest, and (b) the principal amount thereof, in the case of any other
Indebtedness, provided that the principal amount of any Indebtedness that is
denominated in any currency other than United States dollars shall be the amount
thereof, as determined pursuant to the foregoing provision, converted into
United States dollars at the Spot Rate in effect on such date of determination.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees by the referent Person of, and Liens on any
assets of the referent Person securing, Indebtedness or other obligations of
other Persons), advances or capital contributions (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP, provided that an investment by the Issuer for consideration consisting of
common equity securities of the Issuer shall not be deemed to be an Investment.
If the Issuer or any Restricted Subsidiary of the Issuer sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Issuer such that, after giving effect to any such sale or disposition,
such Person is no longer a Subsidiary of the Issuer, the Issuer shall be deemed
to have made an Investment on the date of any such sale or disposition equal to
the fair market value of the Equity Interests of such Restricted Subsidiary not
sold or disposed of in an amount determined as provided in the final paragraph
of the covenant described under the caption "--Restricted Payments."
"Issue Date" means the date of issuance of the Old Notes.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
(other than a financing statement filed by a "true lessor" pursuant to Section
9-408 of the Uniform Commercial Code) under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction).
"Mergers" means, collectively, the transactions resulting in Insilco
becoming a subsidiary of the Insilco Holding Co. and the merger of the Issuer
with and into lnsilco Holding Co. on or prior to the date of issuance of the Old
Notes.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP after reduction in respect of
preferred stock dividends, excluding, however, (a) any gain (or loss), together
with any related provision for taxes on such gain (or loss), realized in
connection with (i) any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions) or (ii) the extinguishment of any
Indebtedness of such Person or any of its Restricted Subsidiaries and (b) any
extraordinary or nonrecurring gain (or loss), together with any related
provision for taxes on such extraordinary or nonrecurring gain (or loss).
"Net Proceeds" means the aggregate cash proceeds received by the Issuer or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of, without duplication,
(a) the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions, recording
fees, title transfer fees and appraiser fees and cost of preparation of assets
for sale) and any relocation expenses incurred as a result thereof, (b) taxes
paid or payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements), (c) amounts required to
be applied to the repayment of Indebtedness (other than as required by clause
(a) of the second paragraph of the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales") secured by a Lien on the
asset or assets that were the subject of such Asset Sale, (d) any reserve
established in accordance with GAAP or any amount placed in escrow, in either
case for adjustment in respect of the sale price of such asset or assets until
such time as such reserve is reversed or such escrow arrangement is terminated,
in which case Net Proceeds shall include only the amount of the reserve so
reversed or the amount returned to the Issuer or its Restricted Subsidiaries
from such escrow arrangement, as the case may be, and (e) all distributions and
other payments made to minority interest holders in Restricted Subsidiaries or
joint ventures as a result of such Asset Sale.
"Non-Recourse Debt" means Indebtedness (i) no default with respect to,
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Issuer or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (ii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock (other than the stock
of an Unrestricted Subsidiary pledged by the Issuer to secure debt of such
Unrestricted Subsidiary) or assets of the Issuer or any of its Restricted
Subsidiaries; provided that in no event shall Indebtedness of any Unrestricted
Subsidiary fail to be Non-Recourse Debt solely as a result of any default
provisions contained in a guarantee thereof by the Issuer or any of its
Restricted Subsidiaries if the Issuer or such Restricted Subsidiary was
otherwise permitted to incur such guarantee pursuant to the Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Old Notes by the Issuer.
"Pari Passu Indebtedness" means Indebtedness of the Issuer that ranks pari
passu in right of payment to the Senior Discount Notes.
"Permitted Business" means any business in which the Issuer and its
Restricted Subsidiaries are engaged on the date of the Indenture or any business
reasonably related, incidental or ancillary thereto.
"Permitted Investments" means (a) any Investment in the Issuer or in a
Restricted Subsidiary of the Issuer, (b) any Investment in cash or Cash
Equivalents, (c) any Investment by the Issuer or any Restricted Subsidiary of
the Issuer in a Person, if as a result of such Investment (i) such Person
becomes a Restricted Subsidiary of the Issuer or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Issuer or a Wholly Owned
Restricted Subsidiary of the Issuer, (d) any Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with the covenant described under the caption "--Repurchase at
the Option of Holders--Asset Sales," (e) any Investment acquired solely in
exchange for Equity Interests (other than Disqualified Stock) of the Issuer, (f)
any Investment in a Person engaged in a Permitted Business (other than an
Investment in an Unrestricted Subsidiary) having an aggregate fair market value,
taken together with all other Investments made pursuant to this clause (f) that
are at that time outstanding, not to exceed 15% of Total Assets at the time of
such Investment (with the fair market value of each Investment being measured at
the time made and without giving effect to subsequent changes in value), (g)
Investments relating to any special purpose Wholly Owned Subsidiary of the
Issuer organized in connection with a Receivables Facility that, in the good
faith determination of the Board of Directors of the Issuer, are necessary or
advisable to effect such Receivables Facility, (h) ordinary course loans to
employees not to exceed $5.0 million outstanding in the aggregate at any time,
(i) any Investment arising out of a Hedging Obligation or commodity price
agreement and (j) any Investment acquired by the Issuer or any of its Restricted
Subsidiaries (A) in exchange for any other Investment or accounts receivable
held by the Issuer or any such Restricted Subsidiary in connection with or as a
result of a bankruptcy, workout, reorganization or recapitalization of the
issuer of such other Investment or the obligor with respect to such accounts
receivable or (B) as a result of a foreclosure by the Issuer or any of its
Restricted Subsidiaries with respect to any secured Investment or other transfer
of title with respect to any secured Investment in default.
"Permitted Liens" means: (i) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Issuer or any
Restricted Subsidiary, provided that such Liens were not incurred in
contemplation of such merger or consolidation and do not secure any property or
assets of the Issuer or any Restricted Subsidiary other than the property or
assets subject to the Liens prior to such merger or consolidation; (ii) Liens
existing on the date of the Indenture; (iii) Liens securing Indebtedness
consisting of Capital Lease Obligations, purchase money Indebtedness, mortgage
financings, industrial revenue bonds or other monetary obligations, in each case
incurred solely for the purpose of financing all or any part of the purchase
price or cost of construction or installation of assets used in the business of
the Issuer or its Restricted Subsidiaries, or repairs, additions or improvements
to such assets, provided that (A) such Liens secure Indebtedness in an amount
not in excess of the original purchase price or the original cost of any such
assets or repair, addition or improvement thereto (plus an amount equal to the
reasonable fees and expenses in connection with the incurrence of such
Indebtedness), (B) such Liens do not extend to any other assets of the Issuer or
its Restricted Subsidiaries (and, in the case of repair, addition or
improvements to any such assets, such Lien extends only to the assets (and
improvements thereto or thereon) repaired, added to or improved), (C) the
Incurrence of such Indebtedness is permitted by "--Certain Covenants--Incurrence
of Indebtedness and Issuance of Preferred Stock" and (D) such Liens attach
within 365 days of such purchase, construction, installation, repair, addition
or improvement; (iv) Liens to secure any refinancings, renewals, extensions,
modification or replacements (collectively, "refinancing") (or successive
refinancings), in whole or in part, of any Indebtedness secured by Liens
referred to in the clauses above so long as such Lien does not extend to any
other property (other than improvements thereto); (v) Liens securing letters of
credit entered into in the ordinary course of business and consistent with past
business practice; (vi) Liens on and pledges of the capital stock of any
Unrestricted Subsidiary securing Non-Recourse Debt of such Unrestricted
Subsidiary; (vii) Liens securing Indebtedness (including all Obligations) under
the Existing Credit Facility; and (viii) other Liens securing Indebtedness that
is permitted by the terms of the Indenture to be outstanding having an aggregate
principal amount at any one time outstanding not to exceed $50.0 million.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Issuer
or any of its Restricted Subsidiaries issued within 60 days after repayment of,
in exchange for, or the net proceeds of which are used to extend, refinance,
renew, replace, defease or refund other Indebtedness of the Issuer or any of its
Restricted Subsidiaries; provided that (a) the principal amount (or accreted
value, if applicable) of such Permitted Refinancing Indebtedness does not exceed
the principal amount of (or accreted value, if applicable), plus premium, if
any, and accrued interest on the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith), (b) such Permitted Refinancing Indebtedness has a
final maturity date no earlier than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded, and (c) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Senior Discount Notes, such Permitted Refinancing Indebtedness is
subordinated in right of payment to, the Senior Discount Notes on terms at least
as favorable, taken as a whole, to the Holders of Senior Discount Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Principals" means DLJMB and/or CVC.
"Public Common Stock Offering" means any issuance of common stock in an
underwritten public offering by the Issuer for cash that is registered pursuant
to the Securities Act.
"Public Equity Offering" means any issuance of common stock or preferred
stock by the Issuer (other than Disqualified Stock) or Insilco (other than to
the Issuer and other than Disqualified Stock) that is registered pursuant to the
Securities Act, other than issuances registered on Form S-8 and issuances
registered on Form S-4 and excluding issuances of common stock pursuant to
employee benefit plans of the Issuer or its Restricted Subsidiaries or otherwise
as compensation to employees of the Issuer or its Restricted Subsidiaries.
"Qualified Proceeds" means any of the following or any combination of the
following: (i) cash; (ii) Cash Equivalents; (iii) assets that are used or useful
in a Permitted Business; and (iv) the Capital Stock of any Person engaged in a
Permitted Business if, in connection with the receipt by the Issuer or any
Restricted Subsidiary of the Issuer of such Capital Stock, (A) such Person
becomes a Restricted Subsidiary of the Issuer or any Restricted Subsidiary of
the Issuer or (B) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Issuer or any Restricted Subsidiary of the Issuer.
"Recapitalization" means the Mergers, the Offering, the amendment to the
Existing Credit Facility in connection therewith and any and all actions taken
in connection with the foregoing.
"Receivables Facility" means one or more receivables financing facilities,
as amended from time to time, pursuant to which the Issuer or any of its
Restricted Subsidiaries sells its accounts receivable to an Accounts Receivable
Subsidiary.
"Receivables Fees" means distributions or payments made directly or by
means of discounts with respect to any participation interests issued or sold in
connection with, and other fees paid to a Person that is not a Restricted
Subsidiary in connection with, any Receivables Facility.
"Related Party" means, with respect to any Principal, (i) any controlling
stockholder or partner of such Principal on the date of the Indenture, or (ii)
any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding (directly or
through one or more Subsidiaries) a 51% or more controlling interest of which
consist of the Principals and/or such other Persons referred to in the
immediately preceding clauses (i) or (ii).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"Specified Agreements" means the Investors' Agreement and the Tax Sharing
Agreement.
"Spot Rate" means, for any currency, the spot rate at which such currency
is offered for sale against United States dollars as determined by reference to
the New York foreign exchange selling rates, as published in The Wall Street
Journal on such date of determination for the immediately preceding business day
or, if such rate is not available, as determined in any publicly available
source of similar market data.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subordinated Indebtedness" means all Obligations with respect to
Indebtedness if the instrument creating or evidencing the same, or pursuant to
which the same is outstanding, designates such Obligations as subordinated or
junior in right of payment to Senior Indebtedness.
"Subsidiary" means, with respect to any Person, (a) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (b) any partnership (i) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (ii)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Tax Sharing Agreement" means any tax sharing agreement or arrangement
between the Issuer and its Subsidiaries, as the same may be amended from time to
time; provided that in no event shall the amount permitted to be paid pursuant
to all such agreements and/or arrangements exceed the amount the Issuer would be
required to pay for income taxes were it to file a consolidated tax return for
itself and its consolidated Restricted Subsidiaries.
"Total Assets" means the total consolidated assets of the Issuer and its
Restricted Subsidiaries, as shown on the most recent balance sheet (excluding
the footnotes thereto) of the Issuer.
"Unit Lock-Up Agreement" means the agreement dated as of August 17, 1998
among the Issuer and the DLJ Mezzanine Investors pursuant to which the DLJ
Mezzanine Investors have agreed with the Issuer not to offer, sell or otherwise
transfer any Senior Discount Notes or Warrants for a period of one year
following the date of such agreement.
"Unrestricted Subsidiary" means any Subsidiary (other than Insilco) that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
board resolution, but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Issuer or any Restricted
Subsidiary of the Issuer unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Issuer or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Issuer; (c) is a Person with respect to which
neither the Issuer nor any of its Restricted Subsidiaries has any direct or
indirect obligation (i) to subscribe for additional Equity Interests (other than
Investments described in clause (g) of the definition of Permitted Investments)
or (ii) to maintain or preserve such Person's financial condition or to cause
such Person to achieve any specified levels, of operating results; and (d) has
not guaranteed or otherwise directly or indirectly provided credit support for
any Indebtedness of the Issuer or any of its Restricted Subsidiaries. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the board resolution giving effect
to such designation and an Officer's Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described under the caption entitled "--Certain Covenants--Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Issuer as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under the
caption entitled "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock," the Issuer shall be in default of such covenant). The Board
of Directors of the Issuer may at any time designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided that such designation shall be deemed to
be an incurrence of Indebtedness by a Restricted Subsidiary of the Issuer of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (i) such Indebtedness is permitted under the covenant
described under the caption entitled "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock" and (ii) no Default or Event of
Default would be in existence following such designation.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (b) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all the outstanding Capital Stock or other ownership
interests of which (other than directors' qualifying shares) shall at the time
be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries
of such Person or by such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person.
DESCRIPTION OF OLD NOTES
The terms of the Exchange Notes are identical in all material respects to
the terms of the Old Notes, except that (i) the offer and sale of the Exchange
Notes have been registered under the Securities Act and therefore the Exchange
Notes are not subject to certain restrictions on transfer applicable to the Old
Notes, will not contain legends relating thereto and will not be entitled to
registration rights or other rights under the Registration Rights Agreement, and
(ii) the Exchange Notes will not provide for any Liquidated Damages, which
rights and provision will terminate as to all of the Senior Discount Notes upon
the consummation of the Exchange Offer, subject to certain provision of the
Registration Rights Agreement. In addition, the Old Notes and the Exchange Notes
will constitute a single series of debt securities under the Indenture. See
"Description of Exchange Notes--General."
THE EXCHANGE OFFER
Pursuant to a Registration Rights Agreement between the Issuer and the
Initial Purchaser (the "Registration Rights Agreement"), the Issuer agreed (i)
to file a registration statement (the "Exchange Offer Registration Statement")
on or prior to 90 days after the closing of the Offering (the "Closing") with
respect to an offer to exchange (the "Exchange Offer") the Old Notes for a new
issue of debt securities of the Issuer (the "Exchange Notes") registered under
the Securities Act, with terms substantially identical to those of the Old Notes
and (ii) to use its reasonable best efforts to cause the Exchange Offer
Registration Statement to be declared effective by the Securities and Exchange
Commission (the "Commission") on or prior to 180 days after the Closing. In
certain circumstances, the Company will be required to provide a shelf
registration statement (the "Shelf Registration Statement") to cover resales of
the Senior Discount Notes by the holders thereof. The Old Notes provide that, in
the event the Issuer fails to satisfy its registration obligations under the
Registration Rights Agreement, the Issuer will be required to pay Liquidated
Damages to the holders of the Old Notes under certain circumstances. Upon
consummation of the Exchange Offer or the effectiveness of such Shelf
Registration Statement, the provision for Liquidated Damages on the Old Notes
shall cease.
The Exchange Offer is not being made to, nor will the Company accept
tenders for exchange from, holders of Old Notes in any jurisdiction in which
the Exchange Offer or the acceptance thereof would not be in compliance with
the securities or blue sky laws of such jurisdiction.
Terms of the Exchange Offer; Period for Tendering Old Notes
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. For each $1,000 principal amount at maturity of Old Notes
surrendered to Holdings pursuant to the Exchange Offer, the holder of such
Old Note will receive an Exchange Note having a principal amount at
maturity equal to that of the surrendered Old Note. Holdings will keep the
Exchange Offer open for not less than 20 business days (or longer if
required by applicable law) after the date notice of the Exchange Offer is
mailed to the holders of the Old Notes. As used herein, the term
"Expiration Date" means 5:00 p.m., New York City time, on December 10,
1998; provided, however, that if Holdings, in its sole discretion, has
extended the period of time for which the Exchange Offer is open, the term
"Expiration Date" means the latest time and date to which the Exchange
Offer is extended.
As of the date of this Prospectus, $138,000,000 in aggregate principal
amount at maturity of the Old Notes were outstanding. The Exchange Offer is not
conditioned upon any minimum principal amount at maturity of Old Notes being
tendered. This Prospectus, together with the Letter of Transmittal, is first
being sent on or about the date set forth on the cover page to all Holders of
Old Notes at the addresses set forth in the security register with respect to
Old Notes maintained by the Trustee. Holdings's obligations to accept Old Notes
for exchange pursuant to the Exchange Offer is subject to certain conditions as
set forth under "Certain Conditions to the Exchange Offer" below.
Holdings expressly reserves the right, at any time or from time to time, to
extend the period of time during which the Exchange Offer is open, and thereby
delay acceptance of any Old Notes, by giving oral or written notice of such
extension to the Exchange Agent and notice of such extension to the Holders as
described below. During any such extension, all Old Notes previously tendered
will remain subject to the Exchange Offer and may be accepted for exchange by
Holdings. Any Old Notes not accepted for exchange for any reason will be
returned without expense to the tendering Holder thereof as promptly as
practicable after the expiration or termination of the Exchange Offer.
Holdings expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under "Certain Conditions to the Exchange Offer." Holdings will
give oral or written notice of any extension, amendment, non-acceptance or
termination to the Holders of the Old Notes as promptly as practicable, such
notice in the case of any extension to be issued by means of a press release or
other public announcement no later than 9:00 a.m., New York City Time, on the
next business day after the previously scheduled Expiration Date. Without
limiting the manner in which Holdings may choose to make any public announcement
and subject to applicable law, Holdings shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a release to the Dow Jones News Service.
Holders of Old Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer. Old Notes which are not tendered for
exchange or are tendered but not accepted in connection with the Exchange Offer
will remain outstanding and be entitled to the benefits of the Indenture, but
will not be entitled to any further registration rights under the Registration
Rights Agreement. Holdings intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
Procedures for Tendering Old Notes
The tender to Holdings of Old Notes by a Holder thereof as set forth below
and the acceptance thereof by Holdings will constitute a binding agreement
between the tendering Holder and Holdings upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a Holder who wishes to tender Old Notes
for exchange pursuant to the Exchange Offer must transmit a properly completed
and duly executed Letter of Transmittal, including all other documents required
by such Letter of Transmittal, to Star Bank, N.A. (the "Exchange Agent") at the
address set forth below under "Exchange Agent" on or prior to the Expiration
Date. In addition, (i) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal, (ii) a timely confirmation
of a book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if
such procedure is available, into the Exchange Agent's account at DTC pursuant
to the procedure for book-entry transfer described below, must be received by
the Exchange Agent prior to the Expiration Date or (iii) the Holder must comply
with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY
OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED
THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO
LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO HOLDINGS.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than
the person signing the Letter of Transmittal, the Old Notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by
Holdings in its sole discretion, duly executed by the registered Holder with the
signature thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. Holdings reserves the absolute right to reject any and all
tenders of any particular Old Notes not properly tendered or to not accept
any particular Old Notes which acceptance might, in the judgment of
Holdings or its counsel, be unlawful. Holdings also reserves the absolute
right to waive any defects or irregularities or conditions of the Exchange
Offer as to any particular Old Notes either before or after the Expiration
Date (including the right to waive the ineligibility of any Holder who
seeks to tender Old Notes in the Exchange Offer). The interpretation of
the terms and conditions of the Exchange Offer as to any particular Old
Notes either before or after the Expiration Date (including the Letter of
Transmittal and the instructions thereto) by Holdings shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with the tender of Old Notes for exchange must be cured within
such reasonable period of time as Holdings shall determine. Neither
Holdings, the Exchange Agent nor any other person shall be under any duty
to give notification of any defect or irregularity with respect to any
tender of Old Notes for exchange, nor shall any of them incur any liability
for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered Holder or Holders of Old Notes, such Old Notes must be endorsed
or accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered Holder or Holders that appear on the Old
Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers or corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing and, unless waived by
Holdings, proper evidence satisfactory to Holdings of its authority to so act
must be submitted.
By executing, or otherwise becoming bound by, the Letter of Transmittal,
each holder of the Old Notes (other than certain specified holders) will
represent that (i) it is not an affiliate of Holdings, (ii) any Exchange Notes
to be received by it were acquired in the ordinary course of its business and
(iii) it has no arrangement with any person to participate in the distribution
(within the meaning of the Securities Act) of the Exchange Notes. If the
tendering Holder is a broker-dealer that will receive Exchange Notes for its
owns account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "--Resales of the Exchange Notes."
Acceptance of Old Notes for Exchange; Delivery of Exchange Notes
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
Holdings will accept, promptly after the Expiration Date, all Old Notes properly
tendered and will issue the Exchange Notes promptly after acceptance of the Old
Notes. See "Certain Conditions to the Exchange Offer" below. For purposes of the
Exchange Offer, Holdings shall be deemed to have accepted properly tendered Old
Notes for exchange when, as and if Holdings has given oral or written notice
thereof to the Exchange Agent.
In all cases, issuance of Exchange Notes for Old Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Old Notes or a timely
Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at
DTC pursuant to the book-entry transfer procedures described below, a properly
completed and duly executed Letter of Transmittal and all other required
documents. If any tendered Old Notes are not accepted for any reason set forth
in the terms and conditions of the Exchange Offer or if certificates
representing Old Notes are submitted for a greater principal amount than the
Holder desires to exchange, such unaccepted or non-exchanged Old Notes will be
returned without expense to the tendering Holder thereof (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's account at DTC
pursuant to the book-entry transfer procedures described below, such
non-exchanged Old Notes will be credited to an account maintained with DTC) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
Book-Entry Transfer
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at DTC for purposes of the Exchange Offer promptly after the
date of this Prospectus. Any financial institution that is a participant in
DTC's systems may make book-entry delivery of Old Notes by causing DTC to
transfer such Old Notes into the Exchange Agent's account in accordance with
DTC's Automated Tender Offer Program ("ATOP") procedures for transfer. However,
the exchange for the Old Notes so tendered will only be made after timely
confirmation of such book-entry transfer of Old Notes into the Exchange Agent's
account, and timely receipt by the Exchange Agent of an Agent's Message (as such
term is defined in the next sentence) and any other documents required by the
Letter of Transmittal. The term "Agent's Message" means a message, transmitted
by DTC and received by the Exchange Agent and forming a part of a Book-Entry
Confirmation, which states that DTC has received an express acknowledgment from
a Participant tendering Old Notes that are the subject of such Book-Entry
Confirmation that such Participant has received and agrees to be bound by the
terms of the Letter of Transmittal, and that Holdings may enforce such agreement
against such Participant. Although delivery of Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at DTC, the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees and any other required documents, must in any
case be delivered to and received by the Exchange Agent at its address set forth
under "--Exchange Agent" on or prior to the Expiration Date, or the guaranteed
delivery procedure set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Guaranteed Delivery Procedures
If a registered Holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by Holdings (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the Holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within five New York
Stock Exchange ("NYSE") trading days after the date of execution of the Notice
of Guaranteed Delivery, the certificates of all physically tendered Old Notes,
in proper form for transfer, or a Book-Entry Confirmation, as the case may be,
and any other documents required by the Letter of Transmittal will be deposited
by the Eligible Institution with the Exchange Agent, and (iii) the certificates
for all physically tendered Old Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and all other documents required by
the Letter of Transmittal, are received by the Exchange Agent within five NYSE
trading days after the date of execution of the Notice of Guaranteed Delivery.
Withdrawal Rights
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount at maturity of such Old Notes), and
(where certificates for Old Notes have been transmitted) specify the name in
which such Old Notes are registered, if different from that of the withdrawing
Holder. If certificates for Old Notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates, the withdrawing Holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such Holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the procedure
for book-entry transfer described above, any note of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn Old
Notes and otherwise comply with the procedures of such facility. All questions
as to the validity, form and eligibility (including time of receipt) of such
notices will be determined by Holdings, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer. Any Old
Notes which have been tendered for exchange but which are not exchanged for any
reason will be returned to the Holder thereof without cost to such Holder (or,
in the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at DTC pursuant to the book-entry transfer procedures described
above, such Old Notes will be credited to an account maintained with DTC for the
Old Notes) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
re-entered by following one of the procedures described under "Procedures for
Tendering Old Notes" above at any time on or prior to the Expiration Date.
Certain Conditions to the Exchange Offer
Notwithstanding any other provisions of the Exchange Offer, Holdings shall
not be required to accept for exchange, or to issue Exchange Notes in exchange
for, any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Old Notes for exchange or the exchange of the
Exchange Notes for such Old Notes, such acceptance or issuance would violate
applicable law or any interpretation of the staff of the Commission.
The foregoing condition is for the sole benefit of Holdings and may be
asserted by Holdings regardless of the circumstances giving rise to such
condition. The failure by Holdings at any time to exercise the foregoing rights
shall not be deemed a waiver of any such right and each such right shall be
deemed an ongoing right which may be asserted at any time and from time to time.
In addition, Holdings will not accept for exchange any Old Notes tendered,
and no Exchange Notes will be issued in exchange for any such Old Notes, if at
such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act.
Exchange Agent
Star Bank, N.A. has been appointed as the Exchange Agent for the Exchange
Offer. All executed Letters of Transmittal should be directed to the Exchange
Agent at one of the addresses set forth below. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent, addressed as follows:
Deliver To:
Star Bank, N.A., Exchange Agent
By Mail or By Hand:
Attn: Corporate Finance Trust Services
425 Walnut Street
6th Floor
Cincinnati, Ohio 45201-1118
Attention: William Sicking
By Facsimile:
(513) 632-5511
Confirm by Telephone:
(513) 632-4278
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
Fees and Expenses
The principal solicitation is being made by mail; however, additional
solicitation may be made by telegraph, telephone or in person by officers and
regular employees of Holdings and its affiliates. No additional compensation
will be paid to any such officers and employees who engage in soliciting
tenders. Holdings will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. Holdings, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The estimated cash expenses to be incurred in connection with the
Exchange Offer will be paid by Holdings and are estimated in the aggregate
to be $55,000.
Transfer Taxes
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that Holders who instruct
Holdings to register Exchange Notes in the name of, or request that Old Notes
not tendered or not accepted in the Exchange Offer to be returned to, a person
other than the registered tendering Holder will be responsible for the payment
of any applicable transfer tax thereon.
Resale of the Exchange Notes
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Exchange Notes would in general
be freely transferable after the Exchange Offer without further registration
under the Securities Act. However, any purchaser of Old Notes who is an
"affiliate" of Holdings or who intends to participate in the Exchange Offer for
the purpose of distributing the Exchange Notes (i) will not be able to rely on
the interpretation of the staff of the Commission, (ii) will not be able to
tender its Old Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Notes unless such sale or transfer
is made pursuant to an exemption from such requirements.
By executing, or otherwise becoming bound by, the Letter of Transmittal
each holder of the Old Notes (other than certain specified holders) will
represent that (i) it is not an "affiliate" of Holdings, (ii) any Exchange Notes
to be received by it were acquired in the ordinary course of its business and
(iii) it has no arrangement with any person to participate in the distribution
(within the meaning of the Securities Act) of the Exchange Notes. In addition,
in connection with any resales of Exchange Notes, any Participating
Broker-Dealer who acquired the Notes for its own account as a result of
market-making or other trading activities must deliver a prospectus meeting the
requirements of the Securities Act. The Commission has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to the Exchange Notes (other than a resale of an unsold allotment
from the original sale of the Old Notes) with the prospectus contained in the
Exchange Offer Registration Statement. Under the Registration Rights Agreement,
Holdings is required to allow Participating Broker-Dealers and other persons, if
any, subject to similar prospectus delivery requirements to use this Prospectus
as it may be amended or supplemented from time to time, in connection with the
resale of such Exchange Notes.
CERTAIN UNITED STATES TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of Old Notes for Exchange Notes pursuant to the Exchange Offer
will not result in any United States federal income tax consequences to holders.
When a holder exchanges an Old Note for an Exchange Note pursuant to the
Exchange Offer, the holder will have the same adjusted basis and holding period
in the Exchange Note as in the Old Note immediately before the Exchange.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a Participating Broker-Dealer in connection with
resales of Exchange Notes received in exchange for Old Notes where such Old
Notes were acquired as a result of market-making activities or other trading
activities. Holdings has agreed that it will make this Prospectus, as amended or
supplemented, available to any Participating Broker-Dealer for use in connection
with any such resale and Participating Broker-Dealers shall be authorized to
deliver this Prospectus for a period not exceeding 90 days after the Expiration
Date.
Holdings will not receive any proceeds from any sales of the Exchange Notes
by Participating Broker-Dealers. Exchange Notes received by Participating
Brokers-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time, in one or more transactions in the over-the-counter market,
in negotiated transactions, through the writing of options on the Exchange Notes
or a combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or at
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such Participating Broker-Dealer that
resells the Exchange Notes that were received by it for its own account pursuant
to the Exchange Offer. Any broker or dealer that participates in a distribution
of such Exchange Notes may be deemed to be an "underwriter" within the meaning
of the Securities Act and any profit on any such resale of Exchange Notes and
any omissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
The Company will promptly send additional copies of this Prospectus and
any amendment or supplement to this Prospectus to any Participating Broker-
Dealer that requests such documents in the Letter of Transmittal. See "The
Exchange Offer."
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Davis Polk & Wardwell, counsel for the Company.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and 1996 and for each of the years in the three year period ended December
31, 1997 included in this Prospectus and the related financial statement
schedules included elsewhere in the registration statement have been audited by
KPMG Peat Marwick LLP, independent auditors, as stated in their report appearing
herein and elsewhere in the registration statement, and have been so included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
INSILCO CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements
<TABLE>
<S> <C>
Condensed Consolidated Balance Sheets ..........................................................................F-2
June 30, 1998 (unaudited)
December 31, 1997
Unaudited Condensed Consolidated Statements of Income ..........................................................F-3
Six months ended June 30, 1998
Six months ended June 30, 1997
Unaudited Condensed Consolidated Statement of Stockholders' Equity (Deficit) ...................................F-4
For the six months ended June 30, 1998
Unaudited Condensed Consolidated Statements of Cash Flows ......................................................F-5
Six months ended June 30, 1998
Six months ended June 30, 1997
Notes to Unaudited Condensed Consolidated Financial Statements .................................................F-6
Independent Auditors' Report ..................................................................................F-10
Audited Consolidated Balance Sheets ...........................................................................F-11
December 31, 1997
December 31, 1996
Audited Consolidated Statements of Operations .................................................................F-12
Year ended December 31, 1997
Year ended December 31, 1996
Year ended December 31, 1995
Audited Consolidated Statement of Stockholders' Equity (Deficit) ..............................................F-13
For the years ended December 31, 1997, 1996 and 1995
Audited Consolidated Statements of Cash Flows .................................................................F-14
Year ended December 31, 1997
Year ended December 31, 1996
Year ended December 31, 1995
Notes to Audited Consolidated Financial Statements ............................................................F-15
</TABLE>
F-1
<PAGE>
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
June 30, December 31,
------- ------------
(unaudited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................. $ 6,983 $ 10,651
Trade receivable, net ................................................................ 85,142 67,209
Other receivables .................................................................... 3,501 3,477
Inventories, net ..................................................................... 61,869 60,718
Prepaid expenses and other current assets ............................................ 3,262 2,993
--------- ---------
Total current assets .............................................................. 160,757 145,048
Property, plant and equipment, net ...................................................... 113,318 113,971
Investment in Thermalex ................................................................. 9,862 9,736
Goodwill, net ........................................................................... 13,077 13,408
Other assets and deferred charges ....................................................... 17,104 20,510
--------- ---------
Total assets ...................................................................... $ 314,118 $ 302,673
========= =========
Liabilities and Stockholders' Deficit
Current liabilities:
Current portion of long-term debt .................................................... $ 15 $ 1,684
Current portion of other long-term obligations ....................................... 3,489 5,393
Accounts payable ..................................................................... 36,755 39,757
Accrued expenses and other ........................................................... 56,249 58,706
--------- ---------
Total current liabilities ............................................................... 96,508 105,540
Long-term debt, excluding current portion ............................................... 264,799 256,059
Deferred taxes .......................................................................... 1,307 --
Other long-term obligations, excluding current portion .................................. 42,308 43,402
Stockholders' deficit ................................................................... (90,804) 102,328)
--------- ---------
Contingencies (See Note 8)
Total liabilities and stockholders' deficit .......................................... $ 314,118 $ 302,673
========= =========
</TABLE>
Note: The condensed consolidated balance sheet at December 31, 1997 has been
derived from the audited balance sheet as of that date.
See accompanying notes to unaudited condensed consolidated financial statements.
F-2
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Income Statements
(Unaudited)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
-------------------- -----------------
<S> <C> <C>
Sales ..................................................................... $ 287,323 $ 276,215
Cost of products sold ..................................................... 200,671 189,953
Depreciation and amortization ............................................. 10,643 9,604
Selling, general and administrative expenses .............................. 52,044 47,857
------------- -------------
Operating income ......................................................... 23,965 28,801
------------- -------------
Other income (expense):
Interest expense ......................................................... (13,805) (7,762)
Interest income .......................................................... 72 2,038
Equity in net income of Thermalex ........................................ 1,450 1,547
Other income, net ........................................................ 2,026 68
------------- -------------
Total other income (expense) ............................................. (10,257) (4,109)
------------- -------------
Income from continuing operations before income taxes .................... 13,708 24,692
Income tax expense ........................................................ (6,494) (9,124)
------------- -------------
Income from continuing operations ........................................ 7,214 15,568
Discontinued operations, net of tax:
Income from operations, net of tax of $1,037.............................. -- 1,170
Gain on disposal, net of tax of $37,213 .................................. -- 57,788
------------- -------------
-- 58,958
------------- -------------
Net Income ............................................................... $ 7,214 $ 74,526
============= ============
Basic earnings per common share:
Income from continuing operations ........................................ $ 1.74 $ 1.63
Discontinued operations .................................................. -- 6.15
------------- -------------
Basic net income per share ............................................... $ 1.74 $ 7.78
============= ============
Weighted average number of common shares outstanding ..................... 4,141,471 9,585,025
============= ============
Diluted earnings per common share:
Income from continuing operations ........................................ $ 1.69 $ 1.58
Discontinued operations .................................................. -- 5.97
------------- -------------
Diluted net income per share ............................................. $ 1.69 $ 7.55
============= ============
Weighted average number of common shares outstanding and potential common
stock ................................................................... 4,270,078 9,875,401
============= ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders' Equity (Deficit)
For the Six Months Ended June 30, 1998
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Accumulated Total
Common Stock Retained Other Stockholders'
Par Value Additional Earnings Treasury Comprehensive Equity
$0.001 Paid-in Capital (Deficit) Stock Income (Deficit)
------------ --------------- --------- -------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997... $5 $ -- $(82,756) $(16,268) $(3,309) $(102,328)
Net income .................... -- -- 7,214 -- -- 7,214
Shares issued upon exercise of
stock options............... -- 3,281 -- -- -- 3,281
Tax benefit from exercise of
stock options............... -- 939 -- -- -- 939
Other comprehensive income..... -- -- -- -- 90 90
----- ------ -------- -------- ------- --------
Balance at June 30, 1998....... $5 $4,220 $(75,542) $(16,268) $(3,219) $(90,804)
===== ====== ======== ======== ======= ========
</TABLE>
INSILCO CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................................ $ 7,214 $ 74,526
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization .................................................. 10,643 9,604
Deferred tax expense ........................................................... 3,917 5,579
Other noncash charges and credits............................................... (1,822) (911)
Change in operating assets and liabilities:
Receivables .................................................................... (18,009) (25,181)
Inventories .................................................................... (1,189) (90)
Payables and other ............................................................. (4,564) 2,946
Discontinued operations:
Gain on disposal of segment .................................................... -- (95,001)
Deferred tax expense ........................................................... -- 25,687
Depreciation ................................................................... -- 194
Change in operating assets and liabilities ..................................... -- (2,512)
---------- ----------
Net cash used in operating activities ........................................ (3,810) (5,159)
---------- ----------
Cash flows from investing activities:
Capital expenditures ............................................................. (10,884) (10,315)
Other investing activities ....................................................... 1,621 3,039
Proceeds from divestiture, net ................................................... -- 112,610
---------- ----------
Net cash provided by (used in) investing activities .......................... (9,263) 105,334
---------- ----------
Cash flows from financing activities:
Proceeds from debt borrowings .................................................... 8,952 15,340
Proceeds from sale of stock ...................................................... 3,281 1,944
Payment of prepetition liabilities ............................................... (1,647) (1,708)
Retirement of long-term debt ..................................................... (1,166) (5,917)
Purchase of treasury stock ....................................................... -- (1,887)
---------- ----------
Net cash provided by financing activities .................................... 9,420 7,772
---------- ----------
Effect of exchange rate changes on cash ........................................... (15) (228)
---------- ----------
Net increase (decrease) in cash and cash equivalents ......................... (3,668) 107,719
Cash and cash equivalents at beginning of period .................................. 10,651 3,481
---------- ----------
Cash and cash equivalents at end of period ........................................ $ 6,983 $ 111,200
========== ==========
Interest paid ..................................................................... $ 13,453 $ 7,332
========== ==========
Income taxes paid ................................................................. $ 1,114 $ 6,293
========== ==========
</TABLE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1998
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information in accordance with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all determinable adjustments have been made which are
considered necessary to present fairly the financial position and the results
of operations and cash flows at the dates and for the periods presented.
(2) Discontinued Operations
On March 5, 1997, the Company completed the sale of its Office
Products Business (consisting of the Rolodex Business, Rolodex Electronics and
Curtis, each as defined below) within the Office Products/ Specialty Publishing
Group with the divestiture of its traditional office products business (the
"Rolodex Business") for $112,610,000, net of transaction costs, resulting in a
gain of $57,788,000, net of taxes of $37,213,000. The divestiture of the
Rolodex Business was preceded in 1996 by the divestiture of the Rolodex
electronics product line ("Rolodex Electronics") and the Company's computer
accessories business, Curtis Manufacturing Co., Inc. ("Curtis"). The proceeds
from these sales aggregated $21,818,000.
On July 7, 1998, the Company amended its Form 10-K for the year
ended December 31, 1997 and its Form 10-Q for the quarter ended March 31, 1998
to account for the sale of the Office Products Business as a discontinued
operation and, accordingly, the accompanying consolidated statements of
operations and cash flows for the periods prior to the sale have been
reclassified. Revenues associated with the discontinued Office Products
Business for the first quarter of 1997 were $10,797,000.
(3) 1997 Transactions
In 1997, the Company completed several material transactions
affecting its ongoing operations and debt and capital structure (the "1997
Transactions") as described more fully below:
o On July 3, 1997, the Company refinanced its existing debt under a new six
year $200 million amended and restated Credit Agreement.
o In the third quarter of 1997, the Company purchased an aggregate of
5,714,284 shares of its common stock in two transactions using the
proceeds from the sale of the Rolodex Business of $112,610,000, net of
transaction costs, and the proceeds received on the issuance of the $150
million aggregate principal amount of 10.25% Senior Subordinated Notes due
2007 (the "Notes").
(4) Merger Agreement
The Company and Silkworm Acquisition Corporation, an affiliate of
DLJ Merchant Banking Partners II (and affiliated funds) ("DLJMB"), have entered
into a definitive merger agreement pursuant to which the stockholders of the
Company will be paid $43.48 in cash and 0.03378 shares of retained stock (having
a nominal value of $45.00 per share) of the surviving corporation. In aggregate,
stockholders will receive approximately $180.2 million in cash and retain
140,031 shares in the surviving entity. The retained shares will constitute
approximately 10% of the common stock of the surviving company
post-recapitalization.
The transaction, which is estimated to have a value of approximately $448
million including existing indebtedness to be assumed or refinanced, is
subject to terms and conditions customary in transactions of this type,
including approval by the company's shareholders, and will be treated as a
recapitalization for accounting purposes. Affiliates of Donaldson, Lufkin &
Jenrette Securities Corporation, which acted as financial advisors to DLJMB,
have committed to provide all debt financing required for the transaction.
In connection with the merger, DLJMB entered into a voting agreement with the
Company's largest shareholder, Water Street Corporate Recovery Fund 1, L.P.
("Water Street"), an affiliate of Goldman Sachs, & Co., in which Water Street
has committed, subject to certain exceptions, to vote, 1,783,878 shares,
approximately 43% of the voting stock of the Company in favor of the proposed
merger.
As a result of the proposed merger, the Company and DLJMB will incur
approximately $28,244,000 of costs and expenses in connection with
consummating the transaction including professional fees, registration costs,
financing costs, and compensation costs. Pursuant to the terms of the merger,
all issued employee stock options will vest. The compensation expense
associated with payments in respect of these vested options is estimated to be
$9,094,000 to employees representing the excess of the $45.00 purchase price
per share over the exercise prices of all outstanding options.
In the second quarter of 1998, the Company incurred and paid $1,341,000 of
costs related to the proposed merger. In addition, the Company's effective
income tax rate of 53% for the second quarter of 1998 increased significantly
from both the 1997 second quarter rate of 38% and the 1998 first quarter rate
of 35% primarily due to the effects of the proposed merger transaction with
DJLMB. Significant transaction costs expected to be incurred as part of this
transaction will not be deductible for tax purposes.
(5) Inventories
Inventories consisted of the following at June 30, 1998 (in thousands):
<TABLE>
<S> <C>
Raw materials and supplies ..................... $26,755
Work-in-process ................................ 21,367
Finished goods ................................. 13,747
-------
Total inventories .............................. $61,869
=======
</TABLE>
(6) Comprehensive Income
On January 1, 1998, the Company adopted the Financial Accounting Standards Board
("FASB") Statement No. 130 ("SFAS 130"), "Reporting Comprehensive Income". SFAS
130 establishes standards for reporting and display of comprehensive income in
the financial statements. Comprehensive income is the total of net income and
most other non-owner changes in equity. This statement expands or modifies
disclosures and has no impact on the Company's financial position, results of
operations or cash flows. Comprehensive income for the first quarters of 1998
and 1997 totaled $4,504,000 and $10,332,000, respectively, including other
comprehensive income consisting of foreign currency translation adjustments
(losses) totaling $71,000 and ($875,000), respectively. Comprehensive income for
the first six months of 1998 and 1997 totaled $7,304,000 and $71,876,000,
respectively, including other comprehensive income consisting of foreign
currency translation adjustment (losses) totaling $90,000 and ($2,650,000),
respectively.
(7) Earnings Per Share
In 1997, the Company adopted Financial Accounting Standards Board ("FASB")
Statement No. 128 ("SFAS 128"), "Earnings per Share", which simplifies the
computation of earnings per share ("EPS"). All prior period earnings per share
amounts have been restated to conform with SFAS 128 requirements. Under SFAS
128, the Company computes two earnings per share amounts - basic EPS and
diluted EPS. Basic EPS is calculated based on the weighted average number of
shares of common stock outstanding for the period. Diluted EPS is based on the
weighted average number of shares of common stock outstanding for the period,
including potential common stock which reflect the dilutive effect of stock
options granted to employees and directors. Potential common stock for the
quarter ended June 30, 1998 and 1997 totaled 148,738 and 219,494,
respectively, and for the first six months of 1998 and 1997 totaled 128,607 and
290,376, respectively.
(8) Contingencies
The Company is implicated in various claims and legal actions arising in the
ordinary course of business. Those claims or liabilities will be addressed in
the ordinary course of business and be paid in cash as expenses are incurred.
In the opinion of management, the ultimate disposition of these matters will
not have a material adverse effect on the Company's consolidated financial
position, results of operations or liquidity.
(9) Estimates
In conformity with generally accepted accounting principles, the preparation
of our financial statements requires our management to make estimates and
assumptions that affect the amounts reported in our financial statements and
accompanying actual results may ultimately differ from those estimates.
(10) Pro Forma Results of Operations
The following financial information presents 1998 actual and 1997 pro forma
consolidated net sales and results of operations. The 1997 pro forma
consolidated net sales and results of operations are presented as if the 1997
Transactions had occurred at the beginning of 1997, exclusive of nonrecurring
items directly attributable to the transaction. The pro forma results of
operations are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30, Ended June 30,
---------------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales................................................ $287,323 $276,215 $170,018 $169,671
Income from continuing operations........................ 7,214 10,077 4,433 8,193
Basic income from continuing operations per share........ 1.74 2.60 1.06 2.08
Diluted income from continuing operations per share...... 1.69 2.42 1.02 1.97
</TABLE>
(11) Contingency Gain
On January 14,1997, the Company's subsidiary, Taylor Publishing
Company ("Taylor"), sued one of its principal competitors in the yearbook
business, Jostens, Inc. ("Jostens"), in the U.S. District Court for the
Eastern District of Texas, alleging violations of the federal antitrust laws
as well as various claims arising under state law. Following a verdict in
favor of Taylor on May 13, 1998, a judgment was entered for Taylor in the
amount of $25,225,000 plus interest at the rate of 5.434 percent. Jostens has
announced that it will seek to overturn the judgment in post trial motions or
on appeal. There can be no assurance as to the actual amount, if any, that
Taylor will recover from Jostens. In the second quarter and first six months
of 1998, the Company incurred $570,000 and $768,000, respectively, of legal
fees in connection with the Jostens lawsuit.
Independent Auditors' Report
The Board of Directors and Stockholders
Insilco Corporation:
We have audited the consolidated financial statements of Insilco
Corporation and subsidiaries as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Insilco Corporation and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Columbus, Ohio
January 30, 1998, except as
to Note 21, which is as of
June 8, 1998 and Note 2,
which is as of July 7, 1998
INSILCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(In thousands, except share data)
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ............................................................ $ 10,651 $ 3,481
Trade receivables, net ............................................................... 67,209 73,874
Other receivables .................................................................... 3,477 8,499
Inventories .......................................................................... 60,718 66,385
Deferred tax asset ................................................................... 277 29,859
Prepaid expenses and other current assets ............................................ 2,716 3,403
-------- --------
Total current assets ............................................................... 145,048 185,501
-------- --------
Property, plant and equipment, net ................................................... 113,971 114,379
Deferred tax asset ................................................................... 1,054 7,542
Other assets ......................................................................... 42,600 40,971
-------- --------
Total assets ....................................................................... $302,673 $348,393
======== ========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of long-term debt .................................................... $ 1,684 $ 24,272
Accounts payable ..................................................................... 39,757 37,984
Customer deposits .................................................................... 20,346 23,490
Accrued expenses and other ........................................................... 43,753 48,319
-------- --------
Total current liabilities .......................................................... 105,540 134,065
Long-term debt, excluding current portion ............................................. 256,059 136,770
Other long-term obligations, excluding current portion ................................ 43,402 44,156
-------- --------
Total liabilities .................................................................. 405,001 314,991
-------- --------
Stockholders' equity (deficit):
Common stock, $.001 par value; 15,000,000 shares authorized; 4,548,373 shares
issued (9,810,794 in 1996) and 4,080,693 shares outstanding (9,487,740 in
1996) .............................................................................. 5 10
Treasury stock, at cost .............................................................. (16,268) (10,745)
Additional paid-in capital ........................................................... -- 81,496
Accumulated deficit .................................................................. (82,756) (37,115)
Foreign currency translation adjustments.............................................. (3,309) (244)
-------- --------
Total stockholders' equity (deficit) ............................................... (102,328) 33,402
-------- --------
Commitments and contingencies (See Notes 10, 11, 14 and 17)
Total liabilities and stockholders' equity (deficit) ............................... $302,673 $348,393
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1997, 1996 and 1995
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ----------
<S> <C> <C> <C>
Sales ............................................................ $528,233 $492,405 $449,506
Cost of products sold ............................................ 370,845 344,912 311,315
Depreciation and amortization .................................... 18,377 15,357 13,352
Selling, general and administrative expenses ..................... 87,909 83,703 69,753
Amortization of Reorganization Goodwill .......................... -- -- 16,205
--------- --------- ----------
Operating income .............................................. 51,102 48,433 38,881
--------- --------- ----------
Other income (expense):
Interest expense ................................................ (20,562) (18,378) (19,546)
Interest income ................................................. 2,837 724 1,472
Equity in net income of Thermalex ............................... 2,647 2,922 2,335
Other income, net ............................................... 794 4,784 11,558
--------- --------- ----------
Total other income (expense) .................................. (14,284) (9,948) (4,181)
--------- --------- ----------
Income from continuing operations before income taxes and
extraordinary item............................................. 36,818 38,485 34,700
Income tax expense ............................................... (13,404) (13,272) (16,694)
--------- --------- ----------
Income from continuing operations before extraordinary item ... 23,414 25,213 18,006
Discontinued operations, net of tax:
Income (loss) from operations ................................... 1,170 8,741 (15,431)
Gain on disposal ................................................ 57,788 5,099 --
--------- --------- ----------
Income (loss) from discontinued operations .................... 58,958 13,840 (15,431)
--------- --------- ----------
Income before extraordinary item .............................. 82,372 39,053 2,575
Extraordinary item, net of tax ................................... (728) -- --
--------- --------- ----------
Net income .................................................... $81,644 $39,053 $2,575
========= ========= ==========
Earnings (loss) per common share:
Income from continuing operations ............................... $3.25 $2.65 $1.83
Discontinued operations ......................................... 8.19 1.45 (1.57)
Extraordinary item .............................................. (0.10) -- --
--------- --------- ----------
Basic net income per share .................................... $11.34 $4.10 $0.26
========= ========= ==========
Weighted average number of common shares outstanding ............ 7,200,103 9,517,123 9,815,109
========= ========= ==========
Earnings (loss) per common share - assuming dilution:
Income from continuing operations ............................... $3.19 $2.55 $1.77
Discontinued operations ......................................... 8.03 1.40 (1.52)
Extraordinary item .............................................. (0.10) -- --
--------- --------- ----------
Diluted net income per share .................................. $11.12 $3.95 $0.25
========= ========= ==========
Weighted average number of common shares outstanding and
common share equivalents ......................................... 7,345,045 9,891,631 10,132,174
========= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Deficit)
For the Years Ended December 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
Total
Common Additional Cumulative Stockholder's
Stock Par Treasury Paid-in Accumulated Translation Equity
Value $.001 Stock Capital Deficit Adjustment (Deficit)
----------- ----- ------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 10 $ -- $ 65,282 $ (78,743) $ -- $ (13,451)
Net income....................... -- -- -- 2,575 -- 2,575
Shares issued upon exercise of
stock options.................. -- -- 226 -- -- 226
Purchase of treasury stock....... -- (6,813) -- -- -- (6,813)
Tax benefit from reduction of
valuation allowance for
deferred tax assets............ -- -- 1,612 -- -- 1,612
Tax benefit from exercise of -- -- 72 -- -- 72
stock options.....................
------- ------ --------- ---------- --------- ------------
Balance at December 31, 1995...... 10 (6,813) 67,192 (76,168) -- (15,779)
Net income....................... -- -- -- 39,053 -- 39,053
Tax benefit from reduction of
valuation allowance for
deferred tax assets............... -- -- 10,237 -- -- 10,237
Purchase of treasury stock....... -- (3,932) -- -- -- (3,932)
Restricted stock................. -- -- 3,300 -- -- 3,300
Shares issued upon exercise of
stock options.................. -- -- 1,071 -- -- 1,071
Reserved shares ................. -- -- (706) -- -- (706)
Tax benefit from exercise of
stock options.................. -- -- 402 -- -- 402
Foreign currency translation -- -- -- -- (244) (244)
adjustment........................
------- ------ --------- ---------- --------- ------------
Balance at December 31, 1996...... 10 (10,745) 81,496 (37,115) (244) 33,402
Net income....................... -- -- -- 81,644 -- 81,644
Repurchase of shares............. (5) -- (92,710) (127,285) -- (220,000)
Costs of Tender Offer............ -- -- (889) -- -- (889)
Purchase of treasury stock....... -- (5,523) -- -- -- (5,523)
Restricted stock................. -- -- 571 -- -- 571
Shares issued upon exercise of
stock options..................... -- -- 8,255 -- -- 8,255
Tax benefit from exercise of
stock options .................... -- -- 3,277 -- -- 3,277
Foreign currency translation -- -- -- -- (3,065) (3,065)
adjustment........................
------- ------ --------- ---------- --------- ------------
Balance at December 31, 1997...... $ 5 $(16,268) $ -- $ (82,756) $ (3,309) $ (102,328)
======= ======== ======= ========== =========== ============
</TABLE>
INSILCO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .......................................................................... $ 81,644 $ 39,053 $ 2,575
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ..................................................... 18,377 15,357 45,524
Deferred tax expense .............................................................. 11,679 11,667 13,868
Other noncash charges and credits ................................................. (127) (4,904) (6,143)
Changes in operating assets and liabilities:
Receivables ....................................................................... (1,297) (3,370) (439)
Inventories ....................................................................... (3,304) 791 (1,212)
Payables and other ................................................................ 12,515 958 (10,077)
Other long-term liabilities ....................................................... (2,344) (2,329) (3,463)
Discontinued operations:
Gain on disposal of Office Products Business .................................... (95,001) (2,493) --
Deferred tax expense ............................................................ 25,687 (1,651) (1,207)
Depreciation .................................................................... 194 1,474 1,406
Change in operating assets and liabilities ...................................... (2,512) 870 (3,088)
----------- ----------- ----------
Net cash provided by operating activities ......................................... 45,511 55,423 37,744
----------- ----------- ----------
Cash flows from investing activities:
Proceeds from divestitures, net ..................................................... 112,610 21,818 --
Other investing activities .......................................................... 6,190 8,704 7,481
Capital expenditures ................................................................ (23,583) (20,009) (20,190)
Discontinued operations ............................................................. -- (2,570) (1,969)
Acquisitions of businesses, net of cash acquired .................................... -- (37,726)
----------- ----------- ----------
Net cash provided by (used in) investing activities ............................... 95,217 (29,783) (14,678)
----------- ----------- ----------
Cash flows from financing activities:
Repurchase of shares ................................................................ (220,000) -- --
Retirement of long-term debt ........................................................ (117,246) (26,330) (12,926)
Debt issuance and Tender Offer costs ................................................ (10,689) -- --
Payment of prepetition liabilities .................................................. (2,811) (2,862) (2,949)
Purchase of treasury stock .......................................................... (1,887) (3,932) (6,813)
Proceeds from sale of subordinated notes ............................................ 150,000 -- --
Proceeds from debt borrowings ....................................................... 64,759 -- 600
Proceeds from sale of stock ......................................................... 4,618 1,071 226
----------- ----------- ----------
Net cash used in financing activities ............................................. (133,256) (32,053) (21,862)
----------- ----------- ----------
Effect of exchange rate changes on cash .............................................. (302) -- --
----------- ----------- ----------
Net increase (decrease) in cash and cash equivalents............................... 7,170 (6,413) 1,204
Cash and cash equivalents at beginning of period ..................................... 3,481 9,894 8,690
----------- ----------- ----------
Cash and cash equivalents at end of period ........................................... $ 10,651 $ 3,481 $ 9,894
=========== =========== ==========
Supplemental information - cash paid for:
Interest, net of capitalized amount ................................................. $ 13,305 $ 17,820 $ 18,199
=========== =========== ==========
Income taxes ........................................................................ $ 7,062 $ 2,081 $ 2,407
=========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the financial
statements of Insilco Corporation (the "Company") and its wholly owned
subsidiaries. The Company's investments in companies for which the Company
does not have operational control are accounted for under the equity method.
All significant intercompany balances and transactions have been eliminated.
(b) Pro Forma Results of Operations
During 1996, the Company entered into two acquisition
transactions (See Note 3). In addition, during 1997, the Company completed a
self tender and share repurchase of approximately 59% of its outstanding
shares (See Note 11) partially with the proceeds from the divestiture of its
traditional office products business (See Note 2) and partially through the
issuance of subordinated notes and refinancing of its bank credit agreement
(See Note 8). These transactions affect the understanding of the Company's
financial position, results of operations and cash flows for 1997 compared to
prior periods. As a result of these transactions, the Company has presented
pro forma results of operations for 1997 and 1996 as if all of these
transactions except the divestiture of the Office Products Business (which is
being accounted for as a discontinued operation) occurred at the beginning of
the respective periods in Note 20.
(c) Cash Equivalents
Cash equivalents include time deposits and highly liquid
investments with original maturities of three months or less.
(d) Trade Receivables
Trade receivables are presented net of allowances for doubtful
accounts and sales returns of $2,132,000 and $4,978,000 at December 31, 1997
and 1996, respectively.
(e) Inventories
Inventories are valued at the lower of cost or market. Cost is
generally determined using the first-in, first-out cost method.
(f) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of
plant and equipment is calculated on the straight-line method over the assets'
estimated useful lives which is 25 years for new buildings, 9 years for
machinery and equipment and ranges from 3 to 7 years for other property, plant
and equipment.
(g) "Fresh Start" Accounting and Reorganization Goodwill
On March 31, 1993, the Company adopted the "fresh start"
accounting principles prescribed by the Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code" (the
"Reorganization accounting principles required the Company to value its assets
and liabilities at fair values and eliminate its accumulated deficit.
Reorganization Goodwill consisted of the excess of the
Company's reorganization value over the aggregate fair value of its tangible
and identified intangible assets on March 31, 1993 and was amortized over a
three year period. Reorganization Goodwill was fully amortized at December 31,
1995.
(h) Deferred Financing Costs
Deferred financing costs are being amortized using the
effective interest method over the life of the related debt.
(i) Goodwill
Goodwill represents the excess of cost of net assets acquired
in business combinations over their fair values. It is amortized on a
straight-line basis over estimated periods to be benefitted (not exceeding 40
years). Goodwill is periodically reviewed for impairment based upon an
assessment of future operations to insure it is appropriately valued.
(j) Interest Rate Hedges
The Company periodically uses interest rate hedges to limit its
exposure to the interest rate risk associated with its floating rate long-term
bank debt. Unamortized premium related to purchased interest rate caps is
included in other assets in the balance sheet and is amortized using the
interest method over the life of the related agreements. Amounts received
under cap agreements and net amounts received (or paid) under swap agreements
are recorded as a reduction (addition) to interest expense.
(k) Environmental Remediation and Compliance
Environmental remediation and compliance expenditures are
expensed or capitalized in accordance with generally accepted accounting
principles. Liabilities are recorded when it is probable the obligations have
been incurred and the amounts can be reasonably estimated.
(l) Fair Value of Financial Instruments
Fair value of cash, accounts receivable, accounts payable and
accrued liabilities approximate book value at December 31, 1997. Fair value of
debt is based upon market value, if traded, or discounted at the estimated
rate the Company would incur currently on similar debt (See Note 9).
(m) Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are determined based upon
differences between the financial reporting and tax basis of assets and
liabilities and are measured by applying enacted tax rates and laws to taxable
years in which such differences are expected to reverse.
(n) Earnings Per Share
In 1997, the Financial Accounting Standards Board ("FASB")
issued Statement No. 128 ("SFAS 128"), "Earnings per Share", which simplifies
the computation of earnings per share ("EPS"). SFAS 128 is effective for
financial statements issued for periods after December 15, 1997. All prior
period earnings per share amounts have been restated to conform with SFAS 128
requirements. Under SFAS 128, the Company computes two earnings per share
amounts - basic EPS and EPS assuming dilution. Basic EPS is calculated based
on the weighted average number of shares of common stock outstanding for the
period. EPS assuming dilution is based on the weighted average number of shares
of common stock outstanding for the period, including common stock equivalents
which reflect the dilutive effect of stock options granted to employees and
directors.
(o) Estimates
In conformity with generally accepted accounting principles,
the preparation of our financial statements requires our management to make
estimates and assumptions that affect the amounts reported in our financial
statements and accompanying actual results may ultimately differ from those
estimates.
(p) Reclassifications
Certain 1996 and 1995 amounts have been reclassified to conform
with 1997 presentation.
(q) Accounting Standards
In June 1997, the FASB issued Statement No. 130 ("SFAS 130"),
"Reporting Comprehensive Income" and Statement No. 131 (''SFAS 131"),
"Disclosures About Segments of an Enterprise and Related Information". SFAS 130
establishes standards for reporting and display of comprehensive income in the
financial statements. Comprehensive income is the total of net income and most
other non-owner changes in equity. SFAS 131 requires that companies disclose
segment data based on how management makes decisions about allocating
resources to segments and measuring their performance. In addition, in
February 1998, the FASB issued Statement No. 132 (''SFAS 132"), "Employers'
Disclosures About Pensions and Other Post-retirement Benefits". concerning
employer disclosure about pension plans and other post-retirement benefits.
SFAS 130, SFAS 131 and SFAS 132 are effective for 1998. These statements
expand or modify disclosures and will have no impact on the Company's
financial position, results of operations or cash flows.
(2) Discontinued Operations
On March 5, 1997, the Company completed the sale of its Office
Products Business within the Office Products/Specialty Publishing Group with
the divestiture of its traditional office products business (the "Rolodex
Business") for $112,610,000, net of transaction costs, resulting in a gain of
$57,788,000, net of taxes of $37,213,000. The divestiture of the Rolodex
Business was preceded in 1996 by the divestiture of the Rolodex electronics
product line ("Rolodex Electronics") and the Company's computer accessories
business, Curtis Manufacturing Co., Inc. ("Curtis"). The proceeds from these
sales aggregated $21,818,000. (See Note 20 for unaudited pro forma financial
information with respect to these divestitures).
On July 7, 1998, the Company amended its Form 10-K to account
for the sale of the Office Products Business as a discontinued operation and,
accordingly, the accompanying consolidated statements of operations and cash
flows for the periods prior to the sale have been reclassified. Revenues
associated with the discontinued Office Products Business for the years 1997,
1996, and 1995 were $10,797,000, $80,069,000 and $111,697,000, respectively.
At December 31, 1996, the current and non-current net assets of the Office
Products Business were $6,531,000 and $8,934,000, respectively.
(3) Acquisitions
In 1996, the Company acquired Great Lake, Inc. ("Great Lake"),
which serves the automotive, heavy truck and industrial manufacturing radiator
replacement market and the automotive aluminum tube business of Helmut
Lingemann GmbH & Co. (the "Lingemann Business") for approximately $37,726,000
including transaction fees and expenses. The Lingemann transactions include
the purchase of stock of Lingemann's German subsidiary, ARUP Alu-Rohr
und-Profil GmbH, and the automotive aluminum tube business assets of its
Duncan, South Carolina based Helima-Helvetio International, Inc. This cash
transaction was financed principally from borrowings under the Company's prior
bank credit agreement (See Note 8).
These acquisitions have been accounted for as purchases and,
accordingly, the purchase prices have been allocated to the assets and
liabilities acquired based on their fair values at the acquisition dates. The
operating results of the businesses acquired have been included for the period
subsequent to their acquisition dates. (See Note 20 for pro forma results).
The fair value of the assets acquired totaled $47,478,000 and the liabilities
assumed totaled $9,752,000.
(4) Inventories
A summary of inventories at December 31 follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Raw materials and supplies .......... $25,396 $27,677
Work in process ..................... 23,427 25,570
Finished goods ...................... 11,895 13,138
------- -------
$60,718 $66,385
======= =======
</TABLE>
(5) Property, Plant and Equipment
A summary of property, plant and equipment at December 31 follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Land ................................. $ 6,267 $ 6,310
Buildings ............................ 33,718 32,772
Machinery and equipment .............. 137,310 125,211
-------- --------
177,295 164,293
Less accumulated depreciation ...... (63,324) (49,914)
-------- --------
$113,971 $114,379
======== ========
</TABLE>
(6) Other Assets
A summary of other assets at December 31 follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ -------
<S> <C> <C>
Goodwill, net ............................... $13,408 $13,659
Equity investment in Thermalex .............. 9,736 8,550
Deferred financing costs .................... 9,246 1,666
Cash surrender value of life insurance ...... 4,636 5,635
Other ....................................... 5,574 11,461
------- -------
$42,600 $40,971
======= =======
</TABLE>
Thermalex, Inc. ("Thermalex") is a joint venture, formed in
1985 between the Company's Thermal Components Division and Mitsubishi
Aluminum, Ltd., which sells aluminum extruded products to the automobile
industry. The Company received $1,461,000 and $3,400,000 of dividend
distributions from Thermalex in 1997 and 1996, respectively.
Sales for Thermalex for the years ended December 31, 1997, 1996
and 1995 were $47,152,000, $48,057,000 and $44,839,000, respectively. Net
income for the years ended December 31, 1997, 1996 and 1995 was $5,294,000,
$5,844,000 and $4,670,000, respectively. Total assets were $36,348,000 and
$28,629,000 at December 31, 1997 and 1996, respectively. Stockholders' equity
was $19,475,000 and $17,102,000 at December 31, 1997 and 1996, respectively.
(7) Accrued Expenses and Other
A summary of accrued expenses and other at December 31 follows
(in thousands):
<TABLE>
<CAPTION>
1997 1996
------ -------
<S> <C> <C>
Salaries and wages payable ...................... $ 9,445 $ 9,838
Accrued interest payable ........................ 8,038 3,113
Current portion of the long term obligations .... 5,393 6,661
Accrued taxes payable ........................... 1,112 116
Pension ......................................... 5,523 5,682
Other accrued expenses .......................... 14,242 22,909
------- -------
$43,753 $48,319
======= =======
</TABLE>
(8) Long-term Debt
A summary of long-term debt at December 31 follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- ----------
<S> <C> <C>
Subordinated notes .................... $150,000 --
Bank revolving credit facility ........ 87,500 41,300
Alternative currency borrowings ....... 18,348 --
Bank term loan ........................ -- 116,677
Miscellaneous ......................... 1,895 3,065
-------- --------
257,743 161,042
Less current portion .................. (1,684) (24,272)
-------- --------
$256,059 $136,770
======== ========
</TABLE>
On July 3,1997, the Company refinanced its existing debt under
a new six year $200 million amended and restated credit agreement with a bank
group consisting of Citicorp USA, Inc., Goldman Sachs Credit Partners L.P.,
(an affiliate of the Company's principal stockholder) and First National Bank
of Chicago (the "Bank Credit Agreement"). The Bank Credit Agreement provides
for a $200 million revolving credit facility with a $50 million sublimit for
issuance of letters of credit ($9.0 million outstanding at December 31, 1997)
and a $50 million sublimit for alternative currency borrowings. The $200
million revolving credit facility is permanently reduced by $20 million per
year beginning July 2000 through July 2002. The bank loans and letters of
credit bear interest at various floating rates, which approximate the one to
six month LIBOR rates plus 1.25% (such LIBOR rates approximated 5.72% to 5.84%
at December 31, 1997) subject to performance versus a leverage ratio. The
revolving credit facility will terminate and all amounts outstanding, if any,
will be due on July 8,2003. Annual commitment fees consist of 0.3% of the
average daily unused commitment.
As of December 31, 1997, under the sublimit for alternative
currency borrowings, the Company had borrowed $18.3 million (33.0 million
Deutsche Marks). The Company's alternative currency borrowing is designed to
hedge the Company's net investment in its German operations. The change, if
any, to the net investment as a result of foreign currency fluctuations is
included in stockholders' equity as a foreign currency translation adjustment.
The alternative currency borrowing is denominated in German Deutsche Marks and
bears interest based on one to six month German LIBOR rates plus 1.25% (such
LIBOR rates approximated 3.53% to 3.75% at December 31, 1997).
The Bank Credit Agreement is guaranteed on a joint and several
basis by the Company's material directly and indirectly wholly owned
subsidiaries (the "Guarantors") and has been secured by substantially all
assets of the Guarantors. The Bank Credit Agreement contains certain financial
and other covenants usual and customary for a secured credit agreement. The
Company was in compliance with these covenants as of December 31, 1997.
In 1997, proceeds from the Bank Credit Agreement were used to
prepay amounts outstanding under the prior bank credit agreement. As a result
of the prepayment, the Company recorded an extraordinary charge of $728,000
(net of a tax benefit of $465,000) due to expensing the related unamortized
debt financing costs.
On August 12, 1997, the Company completed the issuance of
$150,000,000 of 10.25% senior subordinated notes (the "Notes"). Interest is
payable semi-annually, with a maturity date of August 15, 2007.
The Company may redeem the Notes, in whole or in part, upon
certain conditions, at any time on or after August 15, 2002 and prior to
maturity. The Notes have certain covenants that have restrictions on dividends
and distributions. Upon a change of control, holders of the Notes may require
the Company to purchase all or a portion of the Notes at a purchase price
equal to 101% of their aggregate principal amount, plus accrued interest, if
any.
(9) Fair Value of Financial Instruments
The estimated fair value at December 31 of financial
instruments, other than current assets and liabilities, follow (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------------------------- ---------------------------
Estimated Estimated
Book Value Fair Value Book Value Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Debt:
Subordinated notes ..................... $150,000 $154,500 -- --
Bank revolving credit facility ......... 105,848 105,848 41,300 41,300
Bank term loan ......................... -- -- 116,677 116,677
Miscellaneous .......................... 1,895 1,895 3,065 3,065
-------- -------- -------- --------
$257,743 $262,243 $161,042 $161,042
======== ======== ======== ========
Hedges:
Interest rate (asset) .................. -- $423 $(163) $1,281
======== ======== ======== ========
</TABLE>
At December 31, 1997, the Company's only interest rate hedge
consisted of a swap agreement which fixed the interest rate on $45,000,000
(from 5/30/95 to 5/30/98) of borrowings at 8.99%.
The Company is exposed to market risk for changes in interest
rates, but has no off-balance sheet risk of accounting loss. The Company
manages exposure to counterparty credit risk by entering into such
transactions with major financial institutions that are expected to perform
under the terms of such agreements.
(10) Other Long-Term Liabilities
A summary of other long-term liabilities at December 31 follows
(in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Post-retirement benefits, other than pensions (Note 12).. $22,191 $22,112
Prepetition and other tax liabilities ................... 15,762 16,722
Environmental liabilities ............................... 8,625 9,208
Deferred compensation and other ......................... 2,217 2,775
------- -------
48,795 50,817
------- -------
Less current portion .................................... (5,393) (6,661)
$43,402 $44,156
======= =======
</TABLE>
Prepetition and other tax liabilities
On April 1, 1993, the Company and certain of its subsidiaries
emerged from Chapter 11 of the United States Bankruptcy Code (the "Chapter 11
cases") pursuant to a plan of reorganization (the "Plan of Reorganization").
The Chapter 11 cases were commenced on January 13,1991 (the "Petition Date").
The Company entered into an agreement with the Internal Revenue Service
("IRS") settling Federal income tax claims filed in the Chapter 11 cases for
open taxable years through 1990. In addition to this agreement, the tax
liabilities include Prepetition state tax claim settlements, negotiated
payment terms on certain foreign Prepetition tax liabilities, and an estimate
of the Company's obligation for curative action required by the IRS to cure
certain operational defects in one of the Company's defined contribution plans.
Environmental liabilities
The Company's operations are subject to extensive Federal,
state and local laws and regulations relating to the generation, storage,
handling, emission, transportation and discharge of materials into the
environment. The Company has a program for monitoring its compliance with
applicable environmental regulations, the interpretation of which often is
subjective. This program includes, but is not limited to, regular reviews of
the Company operations' obligations to comply with environmental laws and
regulations in order to determine the adequacy of the recorded liability for
remediation activities.
The environmental liabilities included in other long-term
obligations represent the estimate of cash obligations that will be required
in future years for these environmental remediation activities. The Company
has estimated the exposure and accrued liability to be approximately
$8,625,000 relating to these environmental matters at December 31, 1997. These
liabilities are undiscounted and do not assume any possible recoveries from
insurance coverage or claims which the Company may have against third parties.
The estimate is based upon in-house engineering expertise and the professional
services of outside consulting and engineering firms. Because of uncertainty
associated with the estimation of these liabilities and potential regulatory
changes, it is reasonably possible that these estimated liabilities could
change in the near term but it is not expected that the effect of any such
change would be material to the consolidated financial statements in the near
term.
(11) Stockholders' Equity (Deficit)
The Company's authorized capital stock consists of 15,000,000
shares of common stock. Each share entitles its holder to one vote on matters
submitted to stockholders. At December 31, 1997 and 1996, the issued shares of
common stock included 67,483 and 163,557 shares of common stock, respectively,
available to satisfy Prepetition claims.
On July 10, 1997, the Company, using the proceeds from the sale
of the Rolodex Business, purchased (i) 2,805,194 shares from Water Street
Corporate Recovery Fund I, LP. ("Water Street") (the Company's largest
stockholder which is an investment partnership of which Goldman, Sachs & Co.
is the general partner) at $38.50 per share in cash for an aggregate purchase
price of $107,999,969 and (ii) 51,948 shares from Robert L. Smialek, the
President and Chairman of the Board of the Company, at $38.50 per share in
cash, for an aggregate purchase price of $1,999,998.On August 12, 1997, the
Company completed a tender offer (the "Tender Offer"), pursuant to which it
purchased 2,857,142 shares at a price of $38.50 per share in cash. At the
completion of the Tender Offer, the number of outstanding shares were reduced
to approximately 4.1 million.
The Company repurchased 97,500 shares of its common stock
during 1996 at prices ranging from $30.60 to $36.125 under the $15,000,000
stock buyback program approved by the Company's Board of Directors on July 26,
1995. During the last half of 1995, the Company had repurchased 197,500 shares
of its common stock at prices ranging from $32.375 to $36.875 under the stock
buyback program.
Water Street, an investment partnership of which Goldman, Sachs
& Co. ("Goldman Sachs") is the general partner, is the Company's principal
stockholder, owning approximately 45% of the Company's outstanding shares of
common stock.
(12) Pension Plans and Post-retirement Benefits
Pension Plans
The Company has defined benefit pension plans covering certain of
its employees. The benefits under these plans are based primarily on employees'
years of service and compensation near retirement. The Company's funding policy
is consistent with the funding requirements of Federal laws and regulations.
Plan assets consist principally of equity investments, government obligations
and corporate debt securities. The Company also contributes to various
multi-employer plans sponsored by bargaining units for its union employees.
A summary of the plans' funded status reconciled with amounts
recognized in the consolidated balance sheet at December 31 follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
------------------------------- -------------------------------
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Benefits Exceed Assets
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Plan assets at fair value .............................. $86,888 $11,086 $81,025 $11,467
Actuarial present value of benefit obligations:
Vested benefits ....................................... 69,088 14,122 62,230 14,078
Nonvested benefits .................................... 1,217 698 906 606
------- ------- ------- -------
Accumulated obligation ................................. 70,305 14,820 63,136 14,684
Benefits attributable to future compensation increases . 5,177 666 2,504 549
------- ------- ------- -------
Projected benefit obligations .......................... 75,482 15,486 65,640 15,233
------- ------- ------- -------
Plan assets less projected benefit obligation .......... 11,406 (4,400) 15,385 (3,766)
Unrecognized losses (gains) ............................ (13,072) (323) (17,227) (550)
Unrecognized prior service costs ....................... (1,188) 2,054 (1,260) 1,736
------- ------- ------- -------
Pension liability ..................................... $(2,854) $(2,669) $(3,102) $(2,580)
======= ======= ======= =======
</TABLE>
The components of pension cost follow (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Service cost ..................... $ 2,320 $ 2,113 $ $1,620
Interest cost .................... 5,639 5,794 9,949
Actual return on assets .......... (14,689) (6,565) (9,993)
Net amortization and deferral .... 7,741 (44) 118
-------- -------- --------
Net pension cost ................. $ 1,011 $ 1,298 $ 1,694
======== ======== ========
</TABLE>
In addition, the Company recognized pension costs of $597,000
in 1997, $880,000 in 1996 and $580,000 in 1995 related to contributions to
multi-employer plans.
In the fourth quarter of 1995, the Company adopted a lump sum
settlement feature for retirees and certain vested plan participants which
resulted in the settlement of more than $42,000,000 in pension obligations.
The Company recorded a gain on the settlement of $4,300,000 in the fourth
quarter of 1995.
The assumptions used in accounting for the pension plans as of
December 31 follow:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Discount rates ................................... 7.25% 7.75%
Rates of increase in compensation levels ......... 4.50% 4.50%
Expected long-term rate of return on assets ...... 9.00% 9.00%
</TABLE>
In addition to the defined benefit plans described above, the
Company sponsors a qualified defined contribution 401(k) plan, which covers
substantially all non-union employees of the Company and its subsidiaries, and
which covers union employees at one of the Company's subsidiaries. The Company
matches 50% of non-union participants' voluntary contributions up to a maximum
of 3% of the participant's compensation. The Company's expense was
approximately $819,000 in 1997, $738,000 in 1996 and $666,000 in 1995.
Post-retirement benefits, other than pensions
The Company maintains nine post-retirement health care and life
insurance benefit plans, four of which cover approximately 500 present
retirees (the "Retiree Plans") and five of which cover certain retirees and
current employees of four operating units (the "Open Plans"). The Company pays
benefits under the plans when due and does not fund its plan obligations as
they accrue. The Company's accrued post-retirement benefit cost is
attributable to the Retiree Plans and one of the Open Plans, in which
approximately 100 retirees and 300 current employees were participants. It has
been assumed that plan participant contributions, if any, under these five
plans will increase as a result of increases in medical costs. The other Open
Plans have been, and are assumed will continue to be, fully self-funded by
their participants.
During 1996, the Company amended its Retiree Plans and the one
Open Plan to limit the Company's contributions and to adopt a cost-sharing
method based upon a retiree's years of service. As a result, the accumulated
post-retirement benefit obligation for these retiree health care plans was
reduced by approximately $3.4 million.
The components of net periodic post-retirement benefit cost
follow (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service cost ......................... $ 400 $ 492 $ 503
Interest cost ........................ 1,099 1,154 1,401
Amortization of prior service cost ... (437) (365) (145)
------- ------- -------
$ 1,062 $ 1,281 $ 1,759
======= ======= =======
</TABLE>
A summary of the plans' status reconciled with amounts recognized in the
consolidated balance sheet at December 31 follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Accumulated post-retirement benefit obligations:
Retirees ........................................ $ 8,421 $ 7,828
Other fully eligible plan participants .......... 2,616 2,302
Other active plan participants .................. 5,811 4,440
-------- --------
Total ......................................... 16,848 14,570
-------- --------
Prior service cost ............................... 4,425 4,777
Unrecognized net gain ............................ 918 2,765
-------- --------
Accrued post-retirement benefit costs ......... $ 22,191 $ 22,112
======== ========
</TABLE>
At December 31, 1997 and 1996, the weighted-average discount
rates used in determining the accumulated post-retirement benefit obligation
were 7.25% and 7.75%, respectively. The recorded health care cost trend rate
assumed in measuring the accumulated post-retirement benefit obligation was 8%
in 1998, declining to an ultimate rate of 5% in 2010 and thereafter. If these
trend rate assumptions were increased by 1%, the accumulated post-retirement
benefits obligation would increase by approximately 16% ($2,751,000). The effect
of this change on the sum of service cost and interest cost components of the
net periodic post-retirement benefit cost for the year ending December 31, 1997
would be an increase of approximately 21% ($320,000).
(13) Stock-Based Compensation Plans
The Company's 1993 Long-term Incentive Plan (the "Incentive
Plan"), as amended, and the 1993 Nonemployee Director Stock Incentive Plan
(the "Director Plan") provides for the issuance of no more than 2,000,000 and
360,000, respectively, shares of common stock to eligible employees and
nonemployee directors. As of December 31, 1997, the shares available for
future awards under the Incentive Plan and the Director Plan have been reduced
to 694,136, and 146,664, due to stock options and restricted stock awards
granted since the inception of the plans.
Stock Options
Under Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation", companies can either
record expense based on the fair value of stock-based compensation upon
issuance or elect to remain under the "APB Opinion No. 25" method whereby no
compensation cost is recognized upon grant if certain conditions are met. The
Company is continuing to account for its stock-based compensation under APB
Opinion No. 25. However, pro forma disclosures as if the Company had adopted
the cost recognition requirements under SFAS 123 are presented below.
Had the Company determined compensation cost based on the fair
value at the grant date for its stock options granted in 1997, 1996 and 1995
under SFAS 123, the Company's net income and earnings per share would have
approximated the pro forma amounts below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C> <C>
Net income ................... As reported $81,644 $39,053 $2,575
Pro forma 81,069 38,748 2,562
Basic earnings per share ..... As reported 11.34 4.10 0.26
Pro forma 11.26 4.07 0.26
Diluted earnings per share ... As reported 11.12 3.95 0.25
Pro forma 11.06 3.92 0.25
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to grants prior to 1995,
and additional awards in the future are anticipated.
A summary of the options granted follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Price
----------- -----------
<S> <C> <C>
Options outstanding December 31, 1994 .... 1,092,168 $ 21.84
Granted ................................. 12,850 32.30
Forfeited ............................... (28,369) 21.03
Exercised ............................... (12,646) 15.39
---------
Options outstanding December 31, 1995 .... 1,064,003 22.07
Granted ................................. 102,900 34.82
Forfeited ............................... (36,670) 26.69
Exercised ............................... (59,668) 17.95
---------
Options outstanding December 31, 1996 .... 1,070,565 23.36
Granted ................................. 151,500 36.87
Forfeited ............................... (30,938) 24.79
Exercised ............................... (450,860) 18.27
---------
Options outstanding December 31, 1997 .... 740,267 29.17
=========
Options exercisable at December 31:.......
1995..................................... 471,614 20.87
1996..................................... 682,681 21.45
1997 .................................... 421,033 27.18
</TABLE>
At December 31, 1997, the range of exercise prices and
weighted-average remaining contractual life of outstanding options follow:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------- ------------------------------
Weighted Number Weighted
Average Weighted Exercisable at Average
Number Outstanding at Remaining Average December 31, Exercise
Range of Exercise Prices December 31, 1997 Contractual life Exercise Price 1997 Price
- ------------------------- ---------------------- ---------------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
$15.00-20.00............ 148,255 2.6 $16.33 92,255 $15.92
25.01-30.00............ 355,779 2.3 29.91 299,079 29.89
30.01-35.00............ 90,168 7.9 34.66 26,968 34.64
35.01-39.00............ 146,065 4.7 37.03 2,731 37.58
------- -------
740,267 421,033
======= =======
</TABLE>
The per share weighted-average fair value of stock options
granted during 1997, 1996 and 1995 was $13.87, $19.20 and $18.58,
respectively, on the date of grant using the Black Scholes option-pricing
model with the following weighted-average assumptions: 1997 - expected
dividend yield 0.0%, risk-free interest rate of 5.57%, and an expected life of
4.14 years.
Restricted Stock
The awards of restricted common stock to employees and
directors has been contingent upon the participants maintaining certain
investments in the Company's common stock and the restrictions on the awards
lapse only if: (1) the market value of the Company's common stock attains
targeted levels during a specified period; and, (2) generally only after the
participants complete a required service period. The compensation expense
associated with the restricted stock awards is recorded over the employee
service period if it is determined probable that the restrictions based upon
attaining the probable targets will lapse. The compensation expense was
$397,000, $465,000 and $1,290,000 in 1997, 1996, and 1995, respectively. As of
December 31, 1997, awards of 70,324 shares are subject to the restrictions and
will be forfeited if the restrictions are not met prior to August 2000.
(14) Income Tax Expense
The components of total income taxes and a reconciliation of
total income taxes to the actual income tax obligation follow (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Total income taxes:
From continuing operations before extraordinary item:
Current:
Federal ........................................................... $ 588 $ 563 $ 620
State and local ................................................... 515 745 1,000
Foreign ........................................................... 622 297 364
-------- -------- --------
1,725 1,605 1,984
-------- -------- --------
Deferred:
Federal ........................................................... 10,203 10,033 13,840
State and local ................................................... 988 882 870
Foreign ........................................................... 488 752 -
-------- -------- --------
11,679 11,667 14,710
-------- -------- --------
Total from continuing operations before extraordinary item ........ 13,404 13,272 16,694
Discontinued operations .............................................. 38,250 (462) (495)
Extraordinary item ................................................... (465) - -
Stockholders' equity ................................................. (3,277) (402) (72)
-------- -------- --------
Total income taxes ................................................ 47,912 12,408 16,127
Noncash allocations:
Deferred income taxes - continuing operations ....................... (11,679) (11,667) (13,868)
Deferred income taxes - discontinued operations ..................... (25,687) 1,651 1,207
Charges in lieu of taxes ............................................ - - (842)
-------- -------- --------
Actual income tax obligations ..................................... $ 10,546 $ 2,392 $ 2,624
======== ======== ========
</TABLE>
In accordance with the Reorganization SOP, pre-reorganization deferred
tax assets not previously recognized on the balance sheet are recorded as a
reduction to Reorganization Goodwill (until reduced to zero and then as an
addition to paid-in capital) when realized and are presented as "charges in
lieu of taxes."
Pretax income from continuing operations by domestic and foreign source
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Domestic ......... $33,577 $34,606 $31,275
Foreign .......... 3,241 3,879 3,425
------- ------- -------
$36,818 $38,485 $34,700
======= ======= =======
</TABLE>
Income tax expense attributable to income from continuing operations
differs from the amount computed by applying the Federal statutory rate to
pretax income due to the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Computed "expected" tax expense .... $12,886 $13,470 $12,145
State and local taxes .............. 1,323 1,422 1,582
Equity in earnings of affiliates ... (733) (818) (817)
Foreign tax rate differential ...... (373) (296) (651)
Goodwill amortization .............. 20 22 5,672
Other, net ......................... 281 (102) (870)
Valuation allowance ................ -- (426) (367)
------- ------- -------
Income tax expense ................. $13,404 $13,272 $16,694
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31 follow (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards .............. $ 9,526 $ 38,783
Accrued liabilities ........................... 13,882 18,474
Pension and other post-retirement benefits .... 11,026 11,105
Alternative Minimum Tax Credit ................ 7,965 1,872
Capital loss carryforwards .................... -- 8,812
Other......................................... 1,127 2,537
-------- --------
Total gross deferred tax assets ............. 43,526 81,583
Less valuation allowance .................. (29,870) (34,116)
-------- --------
13,656 47,467
Deferred tax liabilities:
Plant and equipment ............................ (11,472) (9,199)
Other .......................................... (853) (867)
-------- --------
Total gross deferred tax liabilities ........... (12,325) (10,066)
-------- --------
Net deferred tax asset.......................... $ 1,331 $ 37,401
======== ========
</TABLE>
The net reduction in the valuation allowance for deferred tax
assets for the years ended December 31, 1997, 1996, and 1995 was $4,246,000,
$10,836,000 and $7,623,000, respectively, which primarily resulted from the
reduction of the deferred tax assets in 1997 and the recognition of additional
deferred tax assets and the expiration of capital loss carryforwards in 1996
and 1995. During the fourth quarters of 1996 and 1995, deferred tax assets of
$10,663,000 and $9,180,000, respectively, were recognized because it was
concluded that it was more likely than not that additional deferred tax assets
would be realized in future years following an evaluation of the actual 1994,
1995 and 1996 taxable income and projections of future taxable income. In
1996, the projections included an assessment of the impact of the decision to
pursue a sale of the Rolodex Business (completed in March 1997) on future
taxable income. Accordingly, the recognition of a pre-reorganization deferred
tax asset of $7,201,000 in 1995 was recorded as a reduction to Reorganization
Goodwill, $10,237,000 and $1,612,000, in 1996 and 1995 respectively, was
recorded as an increase to paid-in capital and $426,000 and $367,000 was
recorded as a component of deferred income tax benefit in 1996 and 1995,
respectively.
Recognition, if any, of tax benefits subsequent to December 31,
1997 relating to unrecognized deferred tax assets are expected to be allocated
to the consolidated statements of operations and additional paid-in capital in
the amounts of $17,676,000 and $12,194,000, respectively. At December 31,
1997, the Company had Federal net operating loss carryforwards of
approximately $16,682,000 which begin to expire in 2008.
The Company and its domestic subsidiaries file a consolidated
U.S. Federal income tax return. The IRS is presently examining the
consolidated Federal income tax returns for 1991 through 1996. Management
believes that the ultimate outcome of this examination will not have a
material adverse effect on the financial condition, results of operations or
liquidity of the Company.
(15) Other Income and Nonrecurring Charges
Other income for 1996 included a favorable adjustment of
$2,200,000 related to the Company's environmental liabilities following
completion of a site clean-up for an amount less than previously estimated.
Other income for 1995 included favorable adjustments of $3,600,000 related to
the Company's environmental liabilities following a review of its liabilities
from previously divested operations, $1,494,000 related to the resolutions of
several legal disputes and a $3,973,000 gain on the sale of idle corporate
assets.
(16) Related Party Transactions
During 1997, the Company paid Goldman Sachs $1,996,000 in
investment banking fees and expenses related to the sale of the Rolodex
Business, $2,042,000 of fees in connection with the refinancing and issuance
of the Notes and $204,000 for services rendered in connection with the Tender
Offer. During 1997, the Company paid Goldman Sachs $3,094,000 in underwriting
fees related to the issuance of the Notes.
As discussed in Note 8, the Company entered into a new bank
credit agreement in 1997. Goldman Sachs Credit Partners L.P, an affiliate of
Goldman Sachs, had an initial participating interest of $66,667,000 in the
Bank Credit Agreement. Goldman Sachs Credit Partners L.P received $583,000
from the agent bank for its portion of the arrangement fee paid by the Company
in 1997.
During 1996, the Company paid Goldman Sachs $1,000,000 in
transaction fees in connection with the purchase of Lingemann (See Note 3). In
connection with such services, the Company provides for the indemnification of
Goldman Sachs against various liabilities, including liabilities under the
Federal securities laws.
(17) Commitments and Contingencies
Rental expense for operating leases totaled $4,283,000,
$3,291,000 and $2,468 000 for the years ended December 31, 1997, 1996 and
1995, respectively. These leases primarily relate to production facilities.
Rentals received for subleases for operating leases totaled $248,000 in 1997
and none in both 1996 and 1995.
Future minimum lease payments under contractually
noncancellable operating leases (with initial lease terms in excess of one
year) for years subsequent to December 31, 1997 are as follows: 1998,
$3,774,000; 1999, $2,861,000; 2000, $2,209,000; 2001, $1,596,000; 2002,
$874,000; and thereafter, $1,324,000. Future minimum rentals to be received
under noncancellable subleases for years subsequent to December 31, 1997 are
as follows: 1998, $260,000; 1999, $260,000; 2000, $260,000; 2001, $22,000; and
thereafter, none.
The Company is implicated in various claims and legal actions
arising in the ordinary course of business. Those claims or liabilities not
subject to Bankruptcy Court litigation will be addressed in the ordinary
course of business and be paid in cash as expenses are incurred.
In the opinion of management, the ultimate disposition of the
matters discussed above will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
(18) Business Segment Information
The Company manufactures and supplies a diversity of products
in three primary business segments. The segments and products are discussed
below:
(a) Automotive Components Group
The Automotive Components Group is made up of three operating
units, Thermal Components Group ("Thermal"), Steel Parts Corporation
("Steel Parts") and Romac Metals ("Romac"). The businesses in this segment
manufacture automotive heat exchangers and related tubing, automatic
transmission and suspension components and stainless steel tubing,
respectively.
In 1997, the group's sales to the automotive OEM market,
aftermarket and non-automotive OEM manufacturers were 46%, 16% and 27% of
total sales, respectively, compared to 46%, 19% and 23% of total sales,
respectively, in 1996 and 43%, 19% and 22% of total sales, respectively,
in 1995.
Thermal's heat-transfer products have a broad range of
applications in motor vehicles, railroad locomotives, construction and
other industrial equipment.
Steel Parts is a manufacturer of close tolerance precision metal
stampings for the automotive industry including clutch plates for
automatic transmissions, suspension parts for vibration-reducing
assemblies and engine mounts. Approximately 70%, 70% and 67% of Steel
Parts' sales were to one of the "Big 3" domestic automobile manufacturers
in 1997, 1996 and 1995, respectively.
Romac manufactures stainless steel tubing for a variety of
marine, architectural, automotive and decorative applications at its
facility in North Carolina. Competition is based principally on price and,
to a lesser extent, on the shapes and finishes that can be achieved with
the tubing.
(b) Technologies Group
The Technologies Group consists of four operating units, Stewart
Connector Systems, Inc. ("Stewart Connector"), Signal Transformer Co.,
Inc. ("Signal"), Stewart Stamping Corporation ("Stewart Stamping"), and
Escod Industries ("Escod"). These units manufacture telecommunication and
electrical component products for the computer networking, telephone
digital switching, precision wiring, main frame computer, automotive and
medical equipment markets.
Stewart Connector designs and manufactures specialized high speed
data connector systems for telecommunications, cellular communications and
data transmission, including local and wide area networks. Foreign sales
accounted for approximately 41% of Stewart Connector's sales in 1997, 40%
in 1996 and 43% in 1995. Competition is based principally on price with
respect to older product lines and on technology and product features for
newer products and to a lesser extent, patent protection.
Signal manufactures both standard off-the-shelf and custom-made
power transformers serving a broad customer base in a variety of
industries. It has a customer base of over nine thousand accounts,
consisting of both OEMs and aftermarket resellers.
Stewart Stamping is a tool designer and subcontract manufacturer
of precision stampings and wireformed parts. Stewart Stamping sells it
products to a broad customer base primarily in the U.S. Stewart Stamping
traditionally has focused on products that because of the engineering and
manufacturing capability required to produce them, have the potential for
repeat business.
Escod produces electronic cable assemblies, specialized wire
harnesses and certain telecommunication equipment subassemblies for sale
to manufacturers of telecommunications, computer and other electronics
equipment. Two telecommunications OEMs together accounted for
approximately 68%, 66% and 60% of Escod's total revenues in 1997, 1996 and
1995, respectively.
(c) Specialty Publishing
Specialty Publishing consists of Taylor Publishing Company
("Taylor"), a wholly owned subsidiary engaged in yearbook and other
specialty publishing.
Taylor is engaged primarily in the contract design and printing
of student yearbooks from which it derived at least 87% of its revenues in
each of the last three years. The market for yearbooks is affected more by
demographic trends than by business cycles. Taylor markets its yearbook
services through commissioned independent sales representatives who
maintain contact with yearbook faculty advisors, school principals and
other key purchasing personnel.
(d) Allocation of Intangibles
In accordance with the Reorganization SOP, the Company has
allocated Reorganization Goodwill and resulting amortization to its
identifiable segments.
(e) Allocated Corporate Overhead
Segment operating income (loss) reflects the allocation of
corporate overhead.
Operating information of each business segment, excluding
divested subsidiaries, follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Automotive Components Group
Sales.................................................... $ 231,070 $ 209,722 $ 180,251
Cost of Sales............................................ 171,375 156,481 134,673
Selling, general and administrative expenses............. 23,889 19,389 15,811
Allocated corporate overhead............................. 3,537 2,981 1,282
Depreciation and amortization............................ 9,199 6,956 4,674
Amortization of Reorganization Goodwill.................. -- -- 3,404
--------- --------- ---------
Segment operating income............................... $ 23,070 $ 23,915 $ 20,407
========= ========= =========
Technologies Group
Sales.................................................... $ 198,941 $ 183,663 $ 170,615
Cost of sales............................................ 140,683 127,337 116,253
Selling, general and administrative expenses............. 25,365 23,190 19,750
Allocated corporate overhead............................. 3,728 3,152 1,412
Depreciation and amortization............................ 6,159 5,531 5,714
Amortization of Reorganization Goodwill.................. -- -- 7,176
--------- --------- ---------
Segment operating income............................... $ 23,006 $ 24,453 $ 20,310
========= ========= =========
Specialty Publishing Group
Sales.................................................... $ 98,222 $ 99,020 $ 98,640
Cost of sales............................................ 58,787 61,094 60,389
Selling, general and administrative expenses............. 29,406 31,504 29,594
Allocated corporate overhead............................. 1,744 1,986 881
Depreciation and amortization............................ 2,930 2,786 2,904
Amortization of Reorganization Goodwill.................. -- -- 5,625
--------- --------- ---------
Segment operating income (loss)........................ $ 5,355 $ 1,650 $ (753)
========= ========= =========
</TABLE>
A reconciliation of segment operating income to consolidated
operating income follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Total segment operating income.... $51,431 $50,018 $39,964
Corporate depreciation............ (89) (84) (60)
Unallocated corporate overhead.... (240) (1,501) (1,023)
------- ------- -------
Consolidated operating income.... $51,102 $48,433 $38,881
======= ======= =======
</TABLE>
A summary of identifiable assets of each business segment at
December 31 follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Automotive Components Group......... $144,847 $143,628
Technologies Group .................. 87,252 80,740
Specialty Publishing ................ 42,767 40,664
Corporate ........................... 27,807 56,208
Discontinued operations ............. -- 27,153
-------- --------
$302,673 $348,393
======== ========
</TABLE>
Corporate assets include cash, deferred taxes and other assets.
A summary of capital expenditures of each business segment follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ -------
<S> <C> <C> <C>
Automotive Components Group .... $12,194 $7,447 $10,244
Technologies Group ............. 8,166 9,597 7,044
Specialty Publishing Group ..... 3,161 2,876 2,776
Corporate ...................... 62 89 126
Discontinued operations ........ -- 2,570 1,969
------- ------ -------
$23,583 $22,579 $22,159
======= ======= =======
</TABLE>
A summary of export sales by geographic region follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Europe .......... $21,193 $20,584 $17,058
Asia ............ 14,007 16,708 17,955
Canada .......... 9,758 7,752 6,928
Mexico .......... 4,292 6,660 5,153
Other ........... 6,155 6,449 5,972
------- ------- -------
$55,405 $58,153 $53,066
======= ======= =======
</TABLE>
(19) Quarterly Financial Information (unaudited)
A summary of quarterly financial information follows (in thousands):
<TABLE>
<S> <C> <C> <C> <C>
1997 Dec. 31 Sept. 30 (1) June 30 March 31 (2)
---- ------------ ------------- ---------- --------------
Sales ...................................................... $ 120,624 $ 131,394 $ 169,671 $ 106,544
Gross profit ............................................... 29,508 34,269 52,170 26,011
Net income from continuing operations before extraordinary
item ..................................................... 3,531 4,315 11,207 4,361
Discontinued operations .................................... -- -- -- 58,958
Extraordinary item ......................................... -- (728) -- --
------------ ------------- ---------- --------------
Net income ................................................. $ 3,531 $ 3,587 $ 11,207 $ 63,319
============ ============= ========== ==============
Per Basic Share:
Continuing operations .................................... $ 0.87 $ 0.77 $ 1.16 $ 0.45
Discontinued operations .................................. -- -- -- 6.20
Extraordinary item ....................................... -- (0.13) -- --
------------ ------------- ---------- --------------
Net income ............................................. $ 0.87 $ 0.64 $ 1.16 $ 6.65
============ ============= ========== ==============
Per Diluted Share:
Continuing operations .................................... $ 0.85 $ 0.75 $ 1.14 $ 0.44
Discontinued operations .................................. -- -- -- 5.95
Extraordinary item ....................................... -- (0.13) -- --
------------ ------------- ---------- --------------
Net income ............................................. $ 0.85 $ 0.62 $ 1.14 $ 6.39
============ ============= ========== ==============
1996 Dec. 31 (3) Sept. 30 (4) June 30 March 31
---- ------------ ------------- ---------- --------------
Sales ...................................................... $ 115,522 $ 122,164 $ 156,566 $ 98,153
Gross profit ............................................... 29,237 31,102 47,950 25,550
Net income from continuing operations....................... 4,795 6,152 10,320 3,946
Discontinued operations .................................... 7,825 2,330 1,485 2,200
------------ ------------- ---------- --------------
Net income ................................................. $ 12,620 $ 8,482 $ 11,805 $ 6,146
============ ============= ========== ==============
Per Basic Share:
Continuing operations .................................... $ 0.50 $ 0.65 $ 1.08 $ 0.41
Discontinued operations .................................. 0.83 0.25 0.16 0.23
------------ ------------- ---------- --------------
Net income ............................................. $ 1.33 $ 0.90 $ 1.24 $ 0.64
============ ============= ========== ==============
Per Diluted Share:
Continuing operations .................................... $ 0.48 $ 0.62 $ 1.05 $ 0.40
Discontinued operations .................................. 0.79 0.24 0.15 0.22
------------ ------------- ---------- --------------
Net income ............................................. $ 1.27 $ 0.86 $ 1.20 $ 0.62
============ ============= ========== ==============
</TABLE>
(1) Includes a pretax extraordinary loss of $1,193,000 (or $.21 per share on
both a basic and diluted basis) related to the extinguishment of debt (See
Note 8).
(2) Includes a pretax gain on the sale of the Rolodex Business totaling
$95,001,000.
(3) Includes the following: (a) pretax gain of $3,125,000 on the sale of
Rolodex Electronics (See Note 2), (b) recognition of a tax benefit of
$3,207,000 primarily related to a capital loss carryforward.
(4) Includes a pretax favorable adjustment of $2,200,000 to the Company's
environmental liabilities.
(20) Pro Forma Results of Operations (unaudited)
Set forth below is certain unaudited pro forma consolidated
financial information of the Company based on historical information that has
been adjusted to reflect all transactions directly or indirectly related to
the transactions discussed in Notes 8 and 11. In addition, the historical
financial information for 1996 has been adjusted to reflect the acquisition of
the Lingemann Business (See Note 3).
The income statement data give effect to the following
transactions as if all had occurred at the beginning of each period presented;
(i) the Company's purchase of 2,805,194 shares of common stock from Water
Street and 51,948 shares from Mr. Smialek at a price of $38.50 per share; (ii)
the Company's purchase of 2,857,142 shares at a price of $38.50 per share
pursuant to the Tender Offer; (iii) the closing of the Bank Credit Agreement
(including advances to refinance in full outstanding indebtedness under the
prior credit agreement); and (iv) the issuance of $150 million of the Notes.
The income statement data for the 1996 period has been adjusted to reflect the
acquisition of the Lingemann Business as if it had occurred at the beginning
of the period. The Lingemann Business acquisition actually occurred in the
third quarter of 1996. The nonrecurring transactions directly related to the
aforementioned transaction are excluded from the pro forma income statement
data. The unaudited summary pro forma consolidated financial data is based on
certain assumptions and estimates, and therefore does not purport to be
indicative of the results that would actually have been obtained had the
transactions been completed as of such dates or indicative of future results of
operations and financial position.
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
Year Ended December 31, 1997
Unaudited Pro Forma Condensed Consolidated Statement of Income
Year Ended December 31, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
Refinancing
and Tender
Historical Offer(1) Pro Forma
------------ ---------- -----------
<S> <C> <C> <C>
Net sales.................................................................. $ 528,233 $ -- $ 528,233
Cost of goods sold......................................................... 370,845 -- 370,845
Depreciation and amortization.............................................. 18,377 -- 18,377
Selling, general and administrative expenses............................... 87,909 -- 87,909
------------ ------------ -----------
Operating income.......................................................... 51,102 -- 51,102
Interest expense........................................................... (20,562) (8,879) (29,441)
Interest income............................................................ 2,837 (2,091) 746
Equity in net income of Thermalex.......................................... 2,647 -- 2,647
Other income, net.......................................................... 794 -- 794
------------ ------------ -----------
Income from continuing operations before income taxes and
extraordinary item...................................................... 36,818 (10,970) 25,848
Income tax expense........................................................ (13,404) 4,223 (9,181)
------------ ------------ -----------
Income from continuing operations before extraordinary item............... $ 23,414 $ (6,747) $ 16,667
============ =========== ===========
Basic income from continuing operations before extraordinary item per
share...................................................................... $ 3.25 $ 4.20
============ =========== ===========
Weighted average number of common shares outstanding....................... 7,200 (3,233) 3,967
Diluted income from continuing operations before extraordinary item per
common share............................................................... $ 3.19 $ 4.05
============ =========== ===========
Weighted average number of common shares and common share
equivalents outstanding.................................................... 7,345 (3,233) 4,112
============ =========== ===========
</TABLE>
INSILCO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
Year Ended December 31, 1997
Unaudited Pro Forma Condensed Consolidated Statement of Income
Year Ended December 31, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
Refinancing
and Tender
Historical Acquisition(2) Subtotal Offer(1) Pro Forma
---------- --------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
Net sales.................................. $ 492,405 $ 14,735 $ 507,140 $ -- $ 507,140
Cost of goods sold......................... 344,912 12,704 357,616 -- 357,616
Depreciation and amortization.............. 15,357 1,577 16,934 -- 16,934
Selling, general and administrative
expenses ................................. 83,703 2,193 85,896 -- 85,896
---------- --------- ---------- ------ ----------
Operating income........................... 48,433 (1,739) 46,694 -- 46,694
Interest expense........................... (18,378) (68) (18,446) (13,770) (32,216)
Interest income............................ 724 -- 724 -- 724
Equity in net income of Thermalex.......... 2,922 -- 2,922 -- 2,922
Other income, net.......................... 4,784 -- 4,784 -- 4,784
---------- --------- ---------- ------ ----------
Income from continuing operations before
income taxes.............................. 38,485 (1,807) 36,678 (13,770) 22,908
Income tax expense......................... (13,272) 1,032 (12,240) 5,301 (6,939)
---------- --------- ---------- ------ ----------
Income from continuing operations.......... $ 25,213 $ (775) $ 24,438 $ (8,469) $ 15,969
========== ========= ========== ========= ==========
Basic income from continuing operations
per share.................................. $ 2.65 $ 4.20
========== ==========
Weighted average number of common
shares outstanding......................... 9,517 (5,714) 3,803
========== ======== ==========
Diluted income from continuing operations
per share.................................. $ 2.55 $ 3.82
========== ==========
Weighted average number of common
shares and common share equivalents
outstanding................................ 9,892 (5,714) 4,178
========== ======== ==========
</TABLE>
The Notes to the Unaudited Pro Forma Condensed Consolidated
Statements of Income follow:
(1) To record the effect on interest expense and the related
income tax effect of (a) the purchase of 2,805,194 shares from Water Street
and 51,948 shares from Mr. Smialek at $38.50 per share in cash for an
aggregate purchase price of $109,999,967, (ii) the entering into of the Bank
Credit Agreement and the issuance and sale of $150,000,000 aggregate principal
amount of the Notes, and (iii) the purchase of 2,857,142 shares at $38.50 per
share in cash for an aggregate purchase price of $109,999,967 pursuant to the
Tender Offer, as if the aforementioned transactions had occurred at the
beginning of the periods presented.
(2) To record the effect on sales, costs and expenses assuming
that the acquisition of the Lingemann Business had occurred as of the
beginning of the period presented. Proceeds from the sales of Rolodex
Electronics and Curtis were assumed to have been applied to reduce the
Company's outstanding debt at the beginning of the period, reducing interest
expense and the related income tax expense. The acquisition of the Lingemann
Business was assumed to have occurred and to have been funded through
borrowings under the prior bank agreement as of the beginning of the period
presented.
(21) Subsequent Event
On March 24,1998, it was announced that the Company and an
affiliate of DLJ Merchant Banking Partners II (and affiliated funds) ("DLJMB")
signed a definitive merger agreement. Under the initial terms of the
agreement, the stockholders of the Company would have received total
consideration of $42.98 in cash and 0.03419 shares of retained stock (having a
nominal value of $44.50 per share) of the surviving corporation. On June 8,
1998 DLJMB agreed to increase the total consideration to be paid by $0.50 in
cash to $43.48 in cash and 0.03378 shares of retained stock (having a nominal
value of $45.00 per share) of the surviving corporation. In aggregate,
stockholders will receive approximately $180.2 million in cash and retain
140,031 shares in the surviving entity. The retained shares will represent
approximately 10% of the common stock outstanding post-recapitalization.
The transaction, which is estimated to have a value of
approximately $448 million including existing indebtedness to be assumed
and/or refinanced, is subject to terms and conditions customary in
transactions of this type, including approval by the Company's shareholders,
and will be treated as a recapitalization for accounting purposes. Affiliates
of Donaldson, Lufkin & Jenrette Securities Corporation, which acted as
financial advisors to DLJMB, have committed to provide all debt financing
required for the transaction.
DLJMB also announced that it entered into a voting agreement in
support of the transaction with respect to 1,783,878 shares, approximately 43%
of the voting stock of the Company, with Water Street, an affiliate of Goldman
Sachs, which is the Company's largest shareholder.
As a result of the proposed merger, the Company and DLJMB, will
incur various costs and expenses in connection with consummating the
transaction including professional fees, registration costs, financing costs,
and compensation costs. Pursuant to the terms of the merger, all issued
employee stock options will vest. The compensation expense associated with the
option payments will include approximately $9.1 million to employees for the
excess of the $45.00 purchase price per share over the exercise price of all
outstanding vested and unvested options.
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The Unaudited Pro Forma Condensed Consolidated Financial Data are based
upon historical consolidated financial statements of Insilco as adjusted to give
effect to the Refinancing, the Mergers, including the Merger Financing and
application of the proceeds thereof. In addition, the operating results for the
first six months of 1997 and full year 1997 have been adjusted to give effect to
the 1997 Transactions described below. A summary of these adjustments follows.
The Refinancing includes the following transactions:
o The issuance of the Insilco Units which will generate gross
proceeds to Insilco of approximately $120.0million.
o The repurchase of the 10 1/4% Notes at a purchase price 101% of
principal amount plus accrued and unpaid interest, assuming that
all of the 10 1/4% Notes are purchased.
o The execution and delivery of the New Credit Facility and
borrowings thereunder (i) to refinance the Existing Credit
Facility and (ii) to purchase 10 1/4% Notes. See "Risk
Factors--Potential Default under Existing Credit Facility;
Potential Lack of Financing."
o Payment of fees and expenses in connection with the Insilco Unit
offering, the New Credit Facility and the purchase of the 10 1/4%
Notes.
The Reorganization Merger was accounted for as a reorganization of entities
under common control, and had no impact on the historical basis of the assets or
liabilities of the Company or Insilco. The Merger was accounted for as a
recapitalization and had no impact on the historical basis of the assets or
liabilities of the Company or Insilco.
The Mergers included the following transactions:
o The issuance of Holdings Units by Silkworm which generated gross
proceeds to Silkworm of approximately $70.2 million, and new
borrowings under Insilco's Existing Credit Facility of
approximately $41.8 million, of which $26.8 million was paid as a
dividend from Insilco to the Company to fund a portion of the
Merger Consideration.
o The initial capitalization of Silkworm through the issuance of
1,245,138 shares of Silkworm common stock for $56.1 million and
the issuance of 1,400,000 shares of PIK Preferred Stock and Class
A Warrants to purchase 65,603 shares of Common Stock for aggregate
consideration of $35.0 million.
o Payment of the Merger Consideration for each share of common stock
of Insilco outstanding immediately prior to the Mergers (4,145,372
shares based on the number of shares outstanding as of June 15,
1998 and assuming no stockholders validly perfect appraisal
rights) consisting of $43.48 in cash and 0.03378 of a share of the
Company.
o Payment of fees and expenses associated with the issuance of the
Senior Discount Notes, the waiver of certain Events of Default
under the Existing Credit Facility, and the Mergers.
o Vesting of all outstanding Options and payment of the Option Cash
Payments (and applicable withholding taxes) and payments pursuant
to employment related agreements.
The 1997 Transactions consisted of the following:
o Refinancing -- Insilco entered into the Existing Credit Facility
as July 3, 1997 that, among other things, provides for (i) a $200
million revolving credit facility, (ii) a $50 million sublimit for
commercial and standby letters of credit and (iii) a $50 million
sublimit for advances in selected foreign currencies.
o The issuance of 10 1/4% Notes -- On August 12, 1997, Insilco
issued $150 million aggregate principal amount of the 10 1/4%
Notes.
o Share Repurchase -- On July 10, 1997, Insilco, using the proceeds
of its sale of the Rolodex Business, purchased an aggregate of
2,857,142 shares for $110 million. On August 12, 1997, Insilco
completed a tender offer pursuant to which it purchased an
additional 2,857,142 shares of common stock of Insilco for $110
million. The purchase of shares of common stock of Insilco in the
tender offer was paid for with proceeds received through the
issuance by Insilco of the 10 1/4% Notes.
The unaudited pro forma condensed consolidated balance sheet data as of
June 30, 1998 have been prepared as if the Refinancing and the Mergers occurred
on that date. The unaudited pro forma condensed consolidated income statements
have been prepared as if the Refinancings, the Mergers and the 1997 Transactions
all occurred on January 1 of the relevant period; however, the expenses directly
related to the aforementioned transactions (other than interest expense) are
excluded from the unaudited pro forma condensed consolidated income statements.
The Unaudited Pro Forma Condensed Consolidated Financial Data are based on
certain assumptions and estimates, and therefore do not purport to be indicative
of the results that would have been obtained had the transactions been completed
as of such dates or indicative of future results of operations and financial
position.
INSILCO HOLDING CO. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of June 30, 1998
(In thousands)
<TABLE>
<CAPTION>
Insilco
-----------------------------------
Merger Refinancing Silkworm Company
Historical Adjustments Adjustment Pro Forma Adjustments Pro Forma
---------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents...... $ 6,983 -- (1) 6,983 -- (1) 6,983
Trade receivables, net......... 85,142 85,142 85,142
Other receivables.............. 3,501 3,501 3,501
Inventories.................... 61,869 61,869 61,869
Deferred tax asset............. -- -- --
Prepaid expenses and
other........................ 3,262 3,262 3,262
---------- -------- --------- -------- -------- --------
Total current assets........... 160,757 -- -- 160,757 -- 160,757
---------- -------- --------- -------- -------- --------
Property, plant and equipment... 113,318 113,318 113,318
Deferred tax assets............. -- 1,599 (3)(5) 1,599 165 (3)(5) 1,764
Other assets.................... 40,043 600 (2) (5,374) (11) 44,027 3,156 (2) 47,183
1,258 (6) 7,500 (12)
---------- -------- --------- -------- -------- --------
Total assets.................... 314,118 3,457 2,126 319,071 3,321 323,022
========== ======== ========= ======== ======== ========
Liabilities and Stockholders'
Equity (Deficit)
Current liabilities
Current portion of long-term
debt......................... $ 15 1,000 (14) 1,015 1,015
Accounts payable............... 36,755 36,755 36,755
Customer deposits.............. 15,141 15,141 15,141
Accrued expenses and other..... 44,597 (3,548)(3)(5) (2,646) (13) 38,403 (220)(3)(5) 38,183
---------- -------- --------- -------- -------- --------
Total current liabilities...... 96,508 (3,548) (1,646) 91,314 (220) 91,094
---------- -------- --------- -------- -------- --------
Long-term debt.................. 264,799 41,804 (1)(4) 8,000 (14) 314,603 68,187 (1)(4) 382,790
Other long-term obligations..... 43,615 43,615 43,615
---------- -------- --------- -------- -------- --------
Total liabilities............ 404,922 38,256 6,354 449,532 67,967 517,499
Preferred Stock................. 32,049 (1)(9) 32,049
Stockholders' equity (deficit) (90,804) (10,340)(1)(5) (4,215)(1)(5)
(1,667)(3) (180,241)(1)(7)
(26,761)(10) 56,031 (1)(8)
3,969 (3)(6) 4,969 (4)(9)
(4,228) (15) (129,831) 26,761 (10) (226,526)
---------- -------- --------- -------- -------- --------
Total liabilities and
stockholders' equity
(deficit)....................... 314,118 3,457 2,126 319,701 3,321 323,022
========== ======== ========= ======== ======== ========
</TABLE>
The notes to the unaudited pro forma condensed consolidated balance sheet
follow:
(1) The sources and uses of cash required to consummate the Mergers as of June
30, 1998 follow (amounts in thousands):
<TABLE>
<CAPTION>
Insilco
-------------------------
Recorded Pending
at 6/30/98 As of 6/30/98 Silkworm Company
---------- ------------- -------- -------
<S> <C> <C> <C> <C>
Sources:
Revolving credit facility.......... $1,340 41,804 -- 43,144
Units.............................. -- -- 70,205 70,205
Preferred stock and warrants....... -- -- 35,000 35,000
Dividend from Insilco to Silkworm.. -- (26,761) 26,761 --
------ ------ ------- -------
Common stock purchased............. -- -- 56,031 56,031
1,340 15,043 187,997 204,380
====== ====== ======= =======
Uses:
Cash merger consideration.......... -- -- 180,241 180,241
Estimated fees and expenses........ 1,340 15,043 7,756 24,139
------ ------ ------- -------
1,340 15,043 187,997 204,380
====== ====== ======= =======
</TABLE>
(2) To record the estimated costs and expenses associated with issuing the
Senior Discount Notes and borrowing on the Existing Credit Facility, which
will be capitalized as debt issuance costs and amortized using the
effective interest method over the life of the respective financial
instruments, as follows (amounts in thousands):
<TABLE>
<CAPTION>
Insilco
------------------------
Recorded Pending
at 6/30/98 As of 6/30/98 Silkworm Company
---------- -------------- -------- --------
<S> <C> <C> <C> <C>
Commitment fees and underwriting
discounts.................. -- $500 2,456 2,956
Professional fees................ -- 100 500 600
Miscellaneous fees and expenses.. -- -- 200 200
-------- ------- -------- --------
-- 600 3,156 3,756
======== ======= ======== ========
</TABLE>
(3) To record the estimated non-cash compensation expense related to the
Rollover of Options and Other Compensation (the Value Appreciation
Agreement), net of estimated tax benefits (the aggregate gain of Rollover
Options represents (i) $45.00 per share, (ii) less applicable strike
prices of the Rollover Shares, (iii) times the number of the Rollover
Shares). The statutory rate used to calculate the tax benefit to the
Company was 38.5 % (35.0 % federal rate and an estimated 3.5 % average
state tax rate, as follows (amount in thousands):
<TABLE>
<CAPTION>
Insilco
---------------------------
Recorded Pending Surviving
at 6/30/98 As of 6/30/98 MergerSub Corporation
---------- ------------- --------- -----------
<S> <C> <C> <C> <C>
Rollover of options....................... -- $2,403 -- 2,403
Rollover of other compensation.......... -- 308 -- 308
---- ------ ---- ------
Total.................................... -- 2,711 -- 2,711
Less tax benefit.......................... -- (1,044) -- (1,044)
---- ------ ---- ------
Net expense.............................. -- 1,667 -- 1,667
==== ====== ==== ======
</TABLE>
(4) To record the issuance and sale of the Units by Silkworm with Warrants to
purchase up to 44,850 shares of Silkworm Common Stock which will generate
approximately $70.2 million of gross proceeds and $43.1 million of
additional borrowing by Insilco under its Existing Credit Facility.
(5) To record the estimated fees and expenses, net of the estimated tax
benefits, which will be expensed upon consummation of the transactions
(the remainder of the fees and expenses are capitalized or non-cash items
-- see Notes 2 and 3), as follows (amounts in thousands):
<TABLE>
Insilco
-------------------------
Recorded Pending
at 6/30/98 As of 6/30/98 Silkworm Company
---------- ------------- -------- -------
<S> <C> <C>
Compensation Expenses:
Buyout of existing options............... -- 6,691 -- 6,691
Other.................................... $ 77 2,215 -- 2,292
Backstop and bridge facility commitments -- 1,750 1,100 2,850
Professional fees 1,224 3,476 3,500 8,200
Other 39 311 -- 350
-------- -------- ------- -------
Total 1,340 14,443 4,600 20,383
Less tax benefit (30) (4,103) (385) (4,518)
-------- -------- ------- -------
Net expenses 1,310 10,340 4,215 15,865
======== ======== ======= =======
</TABLE>
Statutory tax rates used to calculate the tax benefit of (i) Insilco was
38.5 % (35.0 % federal rate and an estimated 3.5 % average state rate) and (ii)
Silkworm was 35.0 % (federal rate).
(6) To record the issuance of equity units to management. Insilco will provide
interest-bearing loans to certain employees under the Management
Investment Program for the sole purpose of purchasing a portion of the
equity units.
(7) To record the cash portion of the Merger Consideration of $43.48 per share
(assuming that no appraisal rights are validly perfected) (based on
4,145,372 shares).
(8) To record the sale of 1,245,138 shares of Silkworm Common Stock.
(9) To record the sale of 1,400,000 shares of PIK Preferred Stock and Class A
Warrants to acquire 65,603 shares of Common Stock.
(10) To record a dividend from Insilco to the Company (into which Silkworm
merged).
(11) To write off deferred financing costs of $5.4 million related to the
existing 10 1/4% Notes.
(12) To record $7.5 million of deferred financing costs related to the issuance
of the Notes and the refinancing of the Existing Credit Facility with the
New Credit Facility. Deferred financing costs for the New Credit Facility
include commitment fees, which will be 0.5% for banks party to the
Existing Credit Facility and 2.50% for new banks. The deferred financing
costs have been calculated as if all existing banks commit to the New
Credit Facility. If none of the existing banks commit, deferred financing
costs would increase by $4.0 million.
(13) To record the tax benefit associated with the write off of the deferred
financing costs and the repurchase premium related to the existing 10 1/4%
Notes at a statutory rate of 38.5%.
(14) To record (i) the repurchase of $150.0 million of 10 1/4% Notes, (ii) the
proceeds from the issuance of $120.0 million of Notes, and (iii)
incremental borrowings under the Existing Credit Facility of $39.0
million.
(15) To record the impact on stockholders' equity of the write off of deferred
financing fees and the repurchase premium relating to the existing 10 1/4%
Notes net of taxes at a statutory rate of 38.5%.
INSILCO HOLDING CO. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
Six Months Ended June 30, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
Insilco
------------------------------------------------------------
Merger Refinancing Silkworm Company
Historical Adjustments Adjustments Pro Forma Adjustments Pro Forma
---------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... $287,323 287,323 287,323
Cost of goods sold ................. 200,671 200,671 200,671
Depreciation and amortization....... 10,643 10,643 10,643
Selling, general and administrative. 52,044 (77) (1)
(1,263) (2) 50,704 50,704
--------- ----------- --------- --------- ----------- --------
Operating income.................... 23,965 1,340 -- 25,305 -- 25,305
Interest expense:
Currently payable ................. (13,138) (1,564) (4) (1,847)(6) (16,549) (16,549)
Accretion.......................... (81) (81) (4,914) (4) (4,995)
Amortization ...................... (586) (60) (4) (167)(6) (813) (154) (4) (967)
Interest income..................... 72 72 72
Equity in net income of Thermalex... 1,423 1,423 1,423
Other income, net................... 2,053 2,053 2,053
--------- ----------- -------- --------- ---------- --------
Income before income taxes......... 13,708 (284) (2,014) 11,410 (5,068) 6,342
Income tax expense.................. (6,494) (30) (1)
1,263 (2)
625 (5) 775 (5) (3,861) 1,443 (5) (2,418)
--------- ----------- -------- --------- ---------- --------
Net income......................... 7,214 1,574 (1,239) 7,549 (3,625) 3,924
Preferred stock dividend ........... -- -- -- -- (2,743) (2,743)
--------- ----------- -------- --------- ---------- --------
Net income available to common..... 7,214 1,574 (1,239) 7,549 (6,368) 1,181
========= =========== ======== ========= ========== =======
Earnings per common share:
Basic.............................. 1.74 0.75
Basic shares....................... 4,141 1,583
Diluted............................ 1.69 0.72
Diluted shares .................... 4,270 1,646
</TABLE>
INSILCO HOLDING CO. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
Six Months Ended June 30, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
Insilco
--------------------------------------------------------------------
1997 Merger Refinancing Silkworm Holdings
Historical Transactions Adjustments Adjustments Pro Forma Adjustments Pro Forma
---------- ------------ ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $276,215 276,215 276,215
Cost of goods sold................... 189,953 189,953 189,953
Depreciation and amortization........ 9,604 9,604 9,604
Selling, general and administrative.. 47,857 47,857 47,857
-------- ------- ------- -------- --------- ------ -------
Operating income.................... 28,801 -- -- -- 28,801 -- 28,801
Interest expense:
Currently payable................... (7,181) (7,118) (3) (1,564) (4) (1,646) (6) (17,509) (17,509)
Accretion........................... (102) (102) (4,914) (4) (5,016)
Amortization........................ (479) (60) (4) (462) (6) (1,001) (154) (4) (1,155)
Interest income...................... 2,038 (1,810) (3) 228 228
Equity in net income of
Thermalex........................... 1,547 -- 1,547 1,547
Other income, net ................... 68 68 68
-------- ------- ------- -------- --------- ------ -------
Income (loss) from continuing
operations before income
taxes 24,692 (8,928) (1,624) (2,108) 12,068 (5,068) 6,964
Income tax expense................... (9,124) 3,437 (3) 625 (5) 812 (5) (4,250) 1,443 (5) (2,807)
-------- ------- ------- -------- --------- ------ -------
Income (loss) from continuing
operations........................ 15,568 (5,491) (999) (1,296) 7,782 (3,625) 4,157
Preferred stock dividend ............ -- -- -- -- -- (2,743) (2,743)
-------- ------- ------- -------- --------- ------ -------
Income available to common
from continuing operations........... 15,568 (5,491) (999) (1,296) 7,782 (6,368) 1,414
======== ======= ======= ======== ========= ====== -------
Earnings from continuing
operations per common share:
Basic ............................. 1.63 0.89
Basic shares ....................... 9,585 1,583
Diluted............................. 1.58 0.86
Diluted shares ..................... 9,875 1,646
</TABLE>
INSILCO HOLDING CO. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
Year Ended December 31, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Insilco
--------------------------------------------------------------
1997 Merger Refinancing Silkworm Holdings
Historical Transactions Adjustments Adjustments Pro Forma Adjustments Pro Forma
---------- ------------ ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $528,233 528,233 528,233
Cost of goods sold................... 370,845 370,845 370,845
Depreciation and amortization........ 18,377 18,377 18,377
Selling, general and administrative.. 87,909 87,909 87,909
------- ------- ------ -------- -------- ------- --------
Operating income.................... 51,102 -- -- -- 51,102 -- 51,102
Interest expense:
Currently payable................... (19,326) (8,634) (3) (3,128) (4) (3,237) (6) (34,325) (34,325)
Accretion........................... (204) (204) (10,173) (4) (10,377)
Amortization........................ (1,032) (245) (3) (120) (4) (662) (6) (2,059) (320) (4) (2,379)
Interest income...................... 2,837 (2,091) (3) 746 746
Equity in net income of
Thermalex........................... 2,647 2,647 2,647
Other income, net.................... 794 794 794
------- ------- ------ -------- -------- ------- --------
Income from continuing
operations before income taxes
and extraordinary item.............. 36,818 (10,970) (3,248) (3,899) 18,701 (10,493) 8,208
Income tax expense................... (13,404) 4,223 (3) 1,250 (5) 1,501 (5) (6,430) 2,977 (5) (3,453)
------- ------- ------ -------- -------- ------- --------
Income from continuing
operations before extraordinary
item................................ 23,414 (6,747) (1,998) (2,398) 12,271 (7,516) 4,755
Preferred stock dividend............. -- -- -- -- -- (5,695) (5,695)
------- ------- ------ -------- -------- ------- --------
Income available to common from
continuing operations before
extraordinary item.................. $23,414 (6,747) (1,998) (2,398) 12,271 (13,211) (940)
======= ======= ====== ======== ======== ======= ========
Earnings from continuing
operations per common share
before extraordinary item:
Basic $ 3.25 (0.59)
Basic shares 7,200 1,583
Diluted $ 3.19 (0.57)
Diluted shares 7,345 1,646
</TABLE>
The notes to the Unaudited Pro Forma Condensed Consolidated Income Statements
for the six months ended June 30, 1997 and 1998 and for the year ended December
31, 1997 follow:
(1) To exclude non-recurring, tax deductible Merger expenses and the related
income tax effect recorded in the six months ended June 30, 1998.
(2) To exclude non-recurring, non-tax deductible Merger expenses and the related
income tax effect recorded in the six months ended June 30, 1998.
(3) To record the effect on interest expense and the related income tax effect
of (i) the purchase on July 10, 1997 of 2,857,142 shares at $38.50 per
share in cash for an aggregate purchase price of $110.0 million, (ii) the
entering into of the Existing Credit Facility on July 3, 1997 and the
issuance and sale of $150.0 million aggregate principal amount of the 10
1/4% Notes on August 12, 1997, and (iii) the purchase on August 12, 1997 of
2,857,142 shares at $38.50 per share in cash for an aggregate purchase
price of $110.0 million, as if the aforementioned transactions had occurred
as of the beginning of the periods presented. Statutory tax rates used to
calculate the income tax effect was 38.5% (35.0% federal rate and an
estimated 3.5% average state rate).
(4) To record the incremental interest expense for the six months ended June
30, 1997 and 1998 and for the year ended December 31, 1997 as follows: (i)
$4.9 million, $4.9 million and $10.2 million, respectively, associated with
Silkworm's issuance of up to $70.2 million of Holdings Senior Discount
Notes at a 14.0 % interest rate compounded semi-annually; (ii) $1.6
million, $1.6 million and $3.1 million, respectively, associated with the
Company's $43.1 million of additional borrowings under the Existing Credit
Facility at an assumed interest rate of 7.25%; (iii) amortization of
Silkworm's $5.2 million of debt issuance costs and discount related to the
warrants related to the Holdings Units of $0.2 million, $0.2 million and
$0.3 million, respectively, over the 10 year note term under the effective
interest method; and (iv) amortization of the incremental debt issuance
costs associated with the Existing Credit Facility agreement totaling $0.6
million ratably over the remaining 5 year term.
(5) To record the tax benefit of the transaction at the statutory rate of each
respective entity. Statutory tax rates used to calculate the tax benefit of
(i) the Company was 38.5% (35.0% federal rate and an estimated 3.5%
average state rate) and (ii) Silkworm was approximately 28.4%, which is
the 35.0% federal tax rate adjusted for the non-deductible portion of
accreted interest due to excess "OID" over the allowable yield to maturity.
(6) To record the net increase in interest expense for the six months ended
June 30, 1997 and 1998 and for the year ended December 31, 1997 as follows:
(i) $0.6 million, $0.8 million and $1.2 million increase in interest
expense associated with the increase in LIBOR spreads from 125 bps under
the Existing Credit Facility to a spread of 350 bps for the Term Loan
Facility under the New Credit Facility and to a spread of 275 bps for the
existing revolving credit facility and based on an assumed LIBOR rate of
4.98% thereunder, (ii) $1.5 million, $1.5 million, and $3.0 million
increase in interest expense related to the additional borrowings under the
existing revolving credit facility, incurred in connection with the
Refinancing, (iii) $7.2 million, $7.2 million, and $14.4 million increase
in interest expense relating to the issuance of the Notes at a rate of
12.0%, offset by a $7.7 million, $7.7 million, and $15.4 million reduction
in interest expense relating to the repayment of the 10 1/4% Notes and the
amortization expense relating to the issuance of the Notes and the
additional Bank Fees partially offset by a reduction in amortization
expense relating to the repurchase of the 10 1/4% Notes. A one-quarter of
one percent change in interest rates would impact interest expense for
borrowings under the Existing Credit Facility for the six months ended June
30, 1997 and 1998 and for the year ended December 31, 1997 in the amount of
approximately $0.2 million, $0.2 million and $0.5 million, respectively. A
one-eighth of one percent change in interest rates would impact interest
expense for indebtedness relating to the Notes for the six months ended
June 30, 1997 and 1998 and for the year ended December 31, 1997 in the
amount of approximately $0.1 million, $0.1 million and $0.2 million,
respectively.
INSILCO HOLDING CO. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
Last Twelve Months Ended June 30, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
1997 1998
-------------------------------- -------------------------------------
Full Year First Six Months First Six Months Last 12 Months
--------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Net Sales................................... $528,233 276,215 287,323 539,341
Cost of goods sold.......................... 370,845 189,953 200,671 381,563
Depreciation and amortization............... 18,377 9,604 10,643 19,416
Selling, general and administrative......... 87,909 47,857 50,704 90,756
-------- ------- ------- -------
Operating income........................... 51,102 28,801 25,305 47,606
Interest expense:
Currently payable.......................... (34,325) (17,509) (16,549) (33,365)
Accretion.................................. (10,377) (5,016) (4,995) (10,356)
Amortization............................... (2,379) (1,155) (967) (2,191)
Interest income............................. 746 228 72 590
Equity in net income of Thermalex........... 2,647 1,547 1,423 2,523
Other income, net........................... 794 68 2,053 2,779
-------- ------- ------- -------
Income from continuing operations before
income taxes and extraordinary item...... 8,208 6,964 6,342 7,586
Income tax expense.......................... (3,453) (2,807) (2,418) (3,064)
-------- ------- ------- -------
Income from continuing operations before
extraordinary item....................... 4,755 4,157 3,924 4,522
Preferred stock dividend.................... (5,695) (2,743) (2,743) (5,695)
-------- ------- ------- -------
Income (loss) available to common from
continuing operations before extraordinary
item........ .............................. $ (940) 1,414 1,181 (1,173)
======== ======= ======= =======
Earnings (loss) from continuing operations per
common share before extraordinary item:
Basic ..................................... $ (0.59) 0.89 0.75 (0.74)
Basic shares............................... 1,583 1,583 1,583 1,583
Diluted.................................... $ (0.57) 0.86 0.72 (0.71)
Diluted shares............................. 1,646 1,646 1,646 1,646
Other Data:
EBITDA (1)................................. 69,479 38,405 35,948 67,022
Adjusted EBITDA (2)........................ 71,341 40,067 38,740 70,014
Capital Expenditures....................... 23,583 10,315 10,884 24,152
Cash interest.............................. 34,325 17,509 16,549 33,365
</TABLE>
(1) "EBITDA" represents net income before interest expense, interest income,
income taxes, depreciation and amortization, other income, equity in net
income of Thermalex and net gain or net loss on sale of assets. EBITDA is
not intended to represent and should not be considered more meaningful
than, or an alternative to, operating income, cash flows from operating
activities or other measures of performance in accordance with generally
accepted accounting principles. EBITDA data are included because the
Company understands that such information is used by certain investors as
one measure of an issuer's historical ability to service debt. While EBITDA
is frequently used as a measure of operations and the ability to meet debt
service requirements, it is not necessarily comparable to other similarly
titled captions of other companies, or to the defined term "Consolidated
Cash Flow" used in the "Incurrence of Indebtedness and Issuance of
Preferred Stock" covenant described herein, due to the potential
inconsistencies in the method of calculation.
(2) "Adjusted EBITDA" equals EBITDA plus dividends received from Thermalex of
$1.5 million, $1.5 million, $1.3 million and $1.3 million for the years
ended December 31, 1997, the six months ended June 30, 1997, the six months
ended June 30, 1998 and the twelve months ended June 30, 1998,
respectively, and excluding the effect of (i) $0.4 million, $0.2 million,
$0.8 million and $1.0 million of legal expenses relating to the Jostens
antitrust suit for the year ended December 31, 1997, six months ended June
30, 1997, the six months ended June 30, 1998 and twelve months ended June
30, 1998, respectively; (ii) $0.7 million of corporate officers' severance
for the six months and twelve months ended June 30, 1998; and (iii) Merger
expenses recorded and paid of $1.3 million for the six months and twelve
months ended June 30, 1998.
INSILCO CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
Last Twelve Months Ended June 30, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
1997 1998
-------------------------------- -----------------------------------
Full Year First Six Months First Six Months Last 12 Months
--------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Net Sales................................... $528,233 276,215 287,323 539,341
Cost of goods sold.......................... 370,845 189,953 200,671 381,563
Depreciation and amortization............... 18,377 9,604 10,643 19,416
Selling, general and administrative......... 87,909 47,857 50,704 90,756
-------- ------- ------- -------
Operating income......................... 51,102 28,801 25,305 47,606
Interest expense:
Currently payable........................ (34,325) (17,509) (16,549) (33,365)
Accretion................................ (204) (102) (81) (183)
Amortization............................. (2,059) (1,001) (813) (1,871)
Interest income............................. 746 228 72 590
Equity in net income of Thermalex........... 2,647 1,547 1,423 2,523
Other income, net........................... 794 68 2,053 2,779
-------- ------- ------- -------
Income from continuing operations before
income taxes and extraordinary item... 18,701 12,032 11,410 18,079
Income tax expense.......................... (6,430) (4,250) (3,861) (6,041)
-------- ------- ------- -------
Income from continuing operations before
extraordinary item.................... 12,271 7,782 7,549 12,038
======== ======= ======= =======
Other Data:
EBITDA (1)............................... 69,479 38,405 35,948 67,022
Adjusted EBITDA (2)...................... 71,341 40,067 38,740 70,014
Capital Expenditures..................... 23,583 10,315 10,884 24,152
Cash interest............................ 34,325 17,509 16,549 33,365
</TABLE>
(1) "EBITDA" represents net income before interest expense, interest income,
income taxes, depreciation and amortization, other income, equity in net
income of Thermalex and net gain or net loss on sale of assets. EBITDA is
not intended to represent and should not be considered more meaningful
than, or an alternative to, operating income, cash flows from operating
activities or other measures of performance in accordance with generally
accepted accounting principles. EBITDA data are included because the
Company understands that such information is used by certain investors as
one measure of an issuer's historical ability to service debt. While EBITDA
is frequently used as a measure of operations and the ability to meet debt
service requirements, it is not necessarily comparable to other similarly
titled captions of other companies, or to the defined term "Consolidated
Cash Flow" used in the "Incurrence of Indebtedness and Issuance of
Preferred Stock" covenant described herein, due to the potential
inconsistencies in the method of calculation.
(2) "Adjusted EBITDA" equals EBITDA plus dividends received from Thermalex of
$1.5 million, $1.5 million, $1.3 million and $1.3 million for the years
ended December 31, 1997, the six months ended June 30, 1997, the six months
ended June 30, 1998 and the twelve months ended June 30, 1998,
respectively, and excluding the effect of (i) $0.4 million, $0.2 million,
$0.8 million and $1.0 million of legal expenses relating to the Jostens
antitrust suit for the year ended December 31, 1997, six months ended June
30, 1997, the six months ended June 30, 1998 and twelve months ended June
30, 1998, respectively; (ii) $0.7 million of corporate officers' severance
for the six months and twelve months ended June 30, 1998; and (iii) Merger
expenses recorded and paid of $1.3 million for the six months and twelve
months ended June 30, 1998.
[Alternate Cover for Market-Making Prospectus]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
PROSPECTUS SUBJECT TO COMPLETION DATED NOVEMBER 10, 1998
Insilco Holding Co.
14% Senior Discount Notes Due 2008
The 14% Senior Discount Notes due 2008 (the "Exchange Notes") were issued
by Insilco Holding Co. (the "Company") in exchange for the 14% Senior Discount
Notes due 2008 (the "Old Notes" and, together with the Exchange Notes, the
"Senior Discount Notes"). The terms of the Exchange Notes are identical in all
material respects to the terms of the Old Notes, except that the Exchange Notes
have been registered under the Securities Act and therefore are not subject to
certain restrictions on transfer applicable to the Old Notes and do not contain
legends relating thereto. The Exchange Notes were issued under the same
Indenture (as defined herein) as the Old Notes and the Exchange Notes and the
Old Notes constitute a single series of debt securities under the Indenture and
vote together as a single class for purposes of determining whether holders of
the requisite percentage in outstanding principal amount at maturity of Senior
Discount Notes have taken certain actions or exercise certain rights under the
Indenture.
The Exchange Notes are subject to redemption at any time on or after August
15, 2003 at the option of the Issuer, in whole or in part, in cash at the
redemption prices set forth herein, plus accrued and unpaid interest to the
applicable redemption date. Notwithstanding the foregoing, on or prior to August
15, 2001, the Issuer may redeem up to 100% of the aggregate principal amount at
maturity of Exchange Notes ever issued under the Indenture in cash at a
redemption price of 114% of the Accreted Value (as defined herein) thereof to
the redemption date, with the net cash proceeds of one or more Public Equity
Offerings (as defined herein). In addition, at any time prior to August 15,
2003, the Issuer may, at its option upon the occurrence of a Change of Control
(as defined herein), redeem the Exchange Notes, in whole but not in part, in
cash at a redemption price equal to the present value at such time of the
optional redemption price of the Exchange Notes at August 15, 2003, computed
using a discount rate equal to the Treasury Rate (as defined herein) plus 75
basis points, to the date of redemption. Upon the occurrence of a Change of
Control, each Holder of Exchange Notes will have the right to require the Issuer
to repurchase all or any part of such Holder's Exchange Notes at an offer price
in cash equal to 101% of the Accreted Value thereof, in the case of any such
purchase prior to August 15, 2003, or 101% of the principal amount at maturity
thereof, in the case of any such purchase on or after August 15, 2003, in each
case plus accrued and unpaid interest to the date of repurchase. In addition, in
the event the Issuer completes one or more Public Common Stock Offerings (as
defined herein) for cash at any time prior to August 15, 2001, the Issuer will
be obligated to use the net cash proceeds received therefrom to make an offer to
purchase the maximum principal amount at maturity of Exchange Notes that may be
purchased with such net cash proceeds at a purchase price in cash equal to 114%
of the Accreted Value thereof to the date of repurchase. See "Description of
Exchange Notes."
The Exchange Notes will be senior unsecured obligations of the Issuer.
The Issuer has also provided a guarantee of the indebtedness under the Existing
Credit Facility (as defined herein) of Insilco Corporation ("Insilco"), the
Issuer's operating subsidiary, which is secured by a pledge of all of the
common stock of Insilco. The Exchange Notes will rank pari passu with all
future senior indebtedness of the Issuer and will rank senior in right of
payment to all future indebtedness of the Issuer that is subordinated to
the Exchange Notes. The Issuer is a holding company and, accordingly, the
Exchange Notes will be effectively subordinated to all liabilities of
Insilco and its subsidiaries. As of June 30, 1998, on a pro forma basis
after giving effect to the Mergers (as defined herein), Merger Financing
(as defined herein) and Refinancing (as defined herein), the Issuer and
its subsidiaries would have had approximately $385.5 million of
Indebtedness (as defined herein) and the Issuer's subsidiaries would have
had approximately $449.5 million of liabilities outstanding, including
Indebtedness under the 10 1/4% Notes and the Existing Credit Facility (each
as defined herein) and other liabilities. Further, the Issuer $35 million
of aggregate liquidation preference of PIK Preferred Stock (as defined)
outstanding, which increases as dividends are paid in kind on the PIK
Preferred Stock through August 1, 2003, after which date dividends will be
payable in cash, and which will be mandatorily redeemable in cash on August
1, 2010 at the aggregate liquidation preference of the PIK Preferred Stock.
-----------------------
(Continued on next page)
See "Risk Factors" commencing on page 18 for a discussion of certain
factors that should be considered by holders of the Old Notes prior to tendering
their Old Notes in the Exchange Offer.
-----------------------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This Prospectus is to be used by (i) Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJSC") in connection with offers and sales in
market-making transactions at negotiated prices related to prevailing market
prices at the time of sale and (ii) by DLJ Investment Partners, L.P., DLJ ESC
II, L.P. and DLJ Investment Funding, Inc. (The "DLJ Mezzanine Investors"), or
other selling security holder named in an accompanying prospectus supplement, in
the over-the-counter market, in privately negotiated transactions, in
underwritten offerings or by a combination of such methods of sale, at fixed
prices that may be changed, at market prices prevailing at the time of sale, at
prices relating to such prevailing prices or at negotiated prices. The DLJ
Mezzanine Investors or such other selling security holder may effect such
transactions by selling the Exchange Notes to or through broker-dealers and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the DLJ Mezzanine Investors or such other selling security
holder or the purchasers of the Exchange Notes for whom such broker-dealers may
act as agent or to whom they sell as principal or both (which compensation to a
particular broker-dealer might be in excess of customary commissions). If
required, the names of any such broker-dealers and the applicable compensation,
if any, will be set forth in an accompanying supplement to this Prospectus. See
"Plan of Distribution." The Company does not intend to list the Exchange Notes
on any securities exchange or to seek admission thereof to trading in the
National Association of Securities Dealers Automated Quotation System. DLJSC has
advised the Company that it intends to make a market in the Exchange Notes;
however, it is not obligated to do so and any market-making may be discontinued
at any time. The Company will receive no portion of the proceeds of the sale of
the Exchange Notes and will bear expenses incident to the registration thereof.
DONALDSON, LUFKIN & JENRETTE
The date of this Prospectus is ___________, 1998
[ALTERNATE SECTIONS FOR MARKET-MAKING PROSPECTUS]
Trading Market for the Exchange Notes
There is no existing trading market for the Exchange Notes, and there can
be no assurance regarding the future development of a market for the Exchange
Notes or the ability of the Holders of the Exchange Notes to sell their Exchange
Notes or the price at which such Holders may be able to sell their Exchange
Notes. If such market were to develop, the Exchange Notes could trade at prices
that may be higher or lower than their initial offering price depending on many
factors, including prevailing interest rates, the Company's operating results
and the market for similar securities. Although it is not obligated to do so,
DLJSC intends to make a market in the Exchange Notes. Any such market-making
activity may be discontinued at any time, for any reason, without notice at the
sole discretion of DLJSC. No assurance can be given as to the liquidity of or
the trading market for the Exchange Notes.
DLJSC may be deemed to be a affiliate of the Company and, as such, may be
required to deliver a prospectus in connection with its market-making activities
in the Exchange Notes. Pursuant to the Registration Rights Agreement, the
Company agreed to use its best efforts to file and maintain a registration
statement that would allow DLJSC to engage in market-making transactions in the
Exchange Notes for up to 90 days from the date on which the Exchange Offer is
consummated. The Company has agreed to bear substantially all the costs and
expenses related to such registration statement.
USE OF PROCEEDS
This Prospectus is delivered in connection with the sale of the Exchange
Notes by DLJSC in market-making transactions or by the DLJ Mezzanine Investors
or other selling securityholder named in an accompanying prospectus supplement
in resale transactions. The Company will not receive any of the proceeds from
such transactions.
PLAN OF DISTRIBUTION
This Prospectus is to be used by DLJSC in connection with offers and sales
of the Exchange Notes in market-making transactions effected from time to time.
DLJSC may act as a principal or agent in such transactions, including as agent
for the counterparty when acting as principal or as agent for both
counterparties, and may receive compensation in the form of discounts and
commissions, including from both counterparties when it acts as agent for both.
Such sales will be made at prevailing market prices at the time of sale, at
prices related thereto or at negotiated prices.
In addition, this Prospectus is to be used by the DLJ Mezzanine Investors
or other selling securityholder named in an accompanying prospectus supplement
in connection with resales in the over-the-counter market, in negotiated
transactions, in underwritten offerings, or a combination of such methods of
sale, a fixed prices which may be changed, at market prices prevailing at the
time of sale, at prices related to prevailing market prices or at negotiated
prices. The DLJ Mezzanine Investors or such other selling securityholder may
effect such transactions by selling the Exchange Notes to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the DLJ Mezzanine Investors or such
other selling securityholder and/or the purchasers of the Exchange Notes for
whom such broker-dealer may act as agents or to whom they sell as principals, or
both (which compensation as to a particular broker-dealer might be in excess of
customary commissions). The address of each of the DLJ Mezzanine Investors is
277 Park Avenue, New York, NY 10172.
In order to comply with the securities laws of certain states, if
applicable, the Exchange Notes will be sold in such jurisdiction only through
registered or licensed brokers or dealers. In addition, in certain states the
Exchange Notes may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
The DLJ Mezzanine Investors or such other selling securityholder and any
broker-dealers or agents that participate with the DLJ Mezzanine Investors in
the distribution of the Exchange Notes may be deemed to be "underwriters" within
the meaning of the Securities Act, and any commissions received by them and any
profit on the resale of the Exchange Notes purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
Each of the DLJ Mezzanine Investors or such other selling securityholder
will be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, which provisions may limit the timing of purchases and
sales of the Exchange Notes by the DLJ Mezzanine Investors.
DLJMB, an affiliate of DLJSC, and certain of its affiliates beneficially
own approximately 69.0% of the common stock of the Company. Thompson Dean and
William F. Dawson, Jr., are officers of DLJMB, Inc. and members of the Board of
Directors of the Company. In addition, DLJSC received a merger advisory fee of
$3.5 million in cash from the Company after the consummation of the Merger.
DLJSC has informed the Company that it does not intend to confirm sales of the
Exchange Notes to any accounts over which it exercises discretionary authority
without the prior specific written approval of such transactions by the
customer.
The Company has been advised by DLJSC that, subject to applicable laws and
regulations, it currently intends to make a market in the Exchange Notes
following completion of the Exchange Offer. However, DLJSC is not obligated to
do so and any such market-making may be interrupted by discontinued at any time
without notice. In addition, such market marking activity will be subject to the
limits imposed by the Securities Act and the Exchange Act. There can be an
assurance that an active trading market will develop or be sustained. See "Risk
Factors--Trading Market for the Exchange Notes."
DLJSC has, from time to time, provided investment banking and other
financial advisory services to the Company in the past for which they have
received customary compensation, including fees received in connection with the
offering of the Senior Discount Notes, and may provide such services and
financial advisory services to the Company in the future. DLJSC acted as
purchaser in connection with the initial sale of the Units and received an
underwriting discount of approximately $2.46 million in connection therewith.
DLJSC and the Company have entered into the Registration Rights Agreement
with respect to the use by it of this Prospectus. Pursuant to such agreement,
the Company agreed to bear all registration expenses incurred under such
agreement, and the Company agreed to indemnify DLJSC against certain
liabilities, including liabilities under the Securities Act.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the
sale of the Offered Securities being registered. All of the amounts shown
are estimates, except for the registration fee.
Registration fee...................................... $ 20,820
Legal fees and expenses............................... $ 25,000
Accounting fees and expenses.......................... $ 5,000
Exchange Agent fees and expenses...................... $ 3,500
Other................................................. $ 680
----------
Total.............................................. $ 55,000
==========
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law permits a corporation
to indemnify any of its directors or officers who was or is a party, or is
threatened to be made a party to any third party proceeding by reason of the
fact that such person is or was a director or officer of the corporation,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reason to believe that such person's conduct was unlawful. In
a derivative action, i.e., one by or in the right of the corporation, the
corporation is permitted to indemnify directors and officers against expenses
(including attorneys' fees) actually and reasonably incurred by them in
connection with the defense or settlement of an action or suit if they acted in
good faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made if such person shall have been adjudged liable to
the corporation, unless and only to the extent that the court in which the
action or suit was brought shall determine upon application that the defendant
directors or officers are fairly and reasonably entitled to indemnity for such
expenses despite such adjudication of liability. Article Seventh of the
Company's Certificate of Incorporation provides for full indemnification of its
officers, directors, employees and agents to the extent permitted by Section
145.
The Company provides insurance from commercial carriers against certain
liabilities incurred by the directors and officers of the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the merger of Silkworm Acquisition Corporation
("Silkworm") with and into the Registrant, Silkworm issued 1,245,138 shares of
its common stock for approximately $56.1 million. In addition, the Registrant
issued 1,400,000 shares of its preferred stock and warrants to purchase 65,603
shares of its common stock for approximately $35.0 million. As a result of the
merger, each share of common stock of Silkworm became a share of common stock of
the Registrant, each share of preferred stock of Silkworm became a share of
preferred stock of the Registrant and each warrant to purchase common stock of
Silkworm became exercisable for an equal number of shares of common stock of the
Registrant.
On August 17, 1998, the Registrant sold 138,000 units (the "Units"), each
consisting of $1,000 principal amount at maturity of its 14% Senior Discount
Notes due 2008 (the "Old Notes") and one warrant to purchase 0.325 of a Share of
common stock, par value $0.001 per share, at an initial exercise price of $0.01
per share (the "Warrants"), to Donaldson, Lufkin & Jenrette Securities
Corporation (the "Initial Purchaser") in a private placement in reliance on
Section 4(2) under the Securities Act, at a price equal to $508.73 per unit. The
Old Notes and Warrants were immediately resold by the Initial Purchaser in
transactions not involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
Exhibit
Number
- ------
2.1 Agreement and Plan of Merger, dated as of March 24, 1998, among Insilco,
INR Holding Co., and Silkworm Acquisition Corporation (incorporated by
reference to Exhibit 10(n) to the Registration Statement on Form S-4
(Reg. No. 333-51145) of Insilco).
2.2 Amendment No. 1 to the Agreement and Plan of Merger, dated June 8, 1998,
among Insilco, INR Holding Co. and Silkworm Acquisition Corporation
(incorporated by reference Exhibit 10(r) to the Registration Statement on
Form S-4 (Reg. No. 333-51145) of Insilco).
3.1 Certificate of Incorporation (incorporated by reference to
Exhibit 3.1 to the Current Report on Form 8-K filed by the
Company on August 18, 1998).
3.2 By laws incorporated by reference to Exhibit 3.2 to the Current
Report on Form 8-K filed by the Company on August 18, 1998).
4.1** Warrant Agreement dated as of August 17, 1998 between Silkworm
Acquisition Corporation and National City Bank, as Warrant Agent.
4.2** Assumption Agreement dated as of August 17, 1998 between Insilco Holding
Co. and National City Bank, as Warrant Agent.
4.3** Form of Class A Warrant.
4.4** Certificate of Designation with respect to Pay-in-kind 15% Senior
Exchangeable Preferred Stock due 2010.
4.5** Investors' Agreement, dated as of August 17, 1998, among Insilco
Holding Co. and the investors named therein.
4.6** Indenture, dated as of August 17, 1998 between Silkworm
Acquisition Corporation and the Trustee.
4.7** First Supplemental Indenture, dated as of August 17, 1998 between
Insilco Holding Co. and the Trustee.
5.1* Opinion of Davis Polk & Wardwell with respect to the Exchange
Notes.
10.1 Insilco Holding Co. Direct Investment Program (incorporated by reference
to Exhibit 4(c) to the Registration Statement on Form S-8 (File No.
333-61809)).
10.2 Insilco Holding Co. Stock Option Plan (incorporated by reference to
Exhibit 4(d) to the Registration Statement on Form S-8 (File No.
333-61809)).
10.3 Insilco Holding Co. and Insilco Corporation Equity Unit Plan
(incorporated by reference to Exhibit 4(c) to the Registration Statement
on Form S-8 (File No. 333-61811)).
12.1** Computation of Ratio of Earnings to Fixed Charges
21.1** Subsidiaries of the Company
23.1* Consent of Davis Polk & Wardwell (contained in their opinion filed
as Exhibit 5.1).
23.2* Consent of KPMG Peat Marwick LLP.
24.1**Power of Attorney (Included in Part II of this Registration
Statement under the caption "Signatures").
25.1**Statement of Eligibility of Star Bank, N.A. on Form T-1.
99.1* Form of Letter of Transmittal
99.2* Form of Notice of Guaranteed Delivery
* Filed herewith
** Previously filed
(b) Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts.
Schedules not listed above have been omitted because the
information required to be set forth therein is not applicable or
is shown on the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the
Registration Statement (or the most recent
post-effective amendment thereof) which,
individually or in the aggregate, represent a
fundamental change in the information set forth in
the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high
end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) under the
Securities Act of 1933 if, in the aggregate, the
changes in volume and price represent no more than
a 20% change in the maximum aggregate offering
price set forth in the "Calculation of
Registration Fee" table in the effective
registration statement;
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the Registration
Statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described in Item 15, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Dublin, State of Ohio, on the 9th day of
November, 1998.
INSILCO HOLDING CO.
By: /s/ ROBERT L. SMIALEK
----------------------------
Chairman and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert L. Smialek, David A. Kauer and Kenneth H.
Koch, or each of them, as his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign the
Registration Statement filed herewith and any and all amendments to said
Registration Statement (including post-effective amendments and related
registration statements (or amendments thereto) filed pursuant to Rule 462
promulgated under the Securities Act of 1933), and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming that all said attorneys-in-fact and agents, or
their substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert L. Smialek Chairman and Chief Executive Officer November 9, 1998
- ---------------------- (Principal Executive Officer)
Robert L. Smialek
/s/ David A. Kauer Vice President and Chief Financial Officer November 9, 1998
- ---------------------- (Principal Financial Officer)
David A. Kauer
/s/ Michael R. Elia Vice President and Comptroller November 9, 1998
- ---------------------- (Principal Accounting Officer)
Michael R. Elia
* November 9, 1998
------------------- Director
William F. Dawson
* November 9, 1998
------------------- Director
Thompson Dean
* November 9, 1998
------------------- Director
David Y. Howe
1998
--------------------- Director
Randall E. Curran
</TABLE>
*By: David A. Kauer
--------------------
David A. Kauer, as
Attorney-in-Fact
INSILCO CORPORATION AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
(In thousands)
Additions
-------------------------
<TABLE>
(1) (2)
Charged Charged
Balance at to costs to other Balance
Description beginning and accounts Deductions at end of
of period expenses (describe) (describe) period
- ------------------------------------------------------ --------------- ---------- -------------- -----------------------------
<S> <C> <C> <C> <C>
For the year ended December 31, 1995
Allowances deducted from assets:
Accounts receivable (for doubtful
receivables) $ 2,247 9775 - (719)(a) 11303
Inventory (primarily for obsolescence) 4094 9031 - (6,971)(b) 6154
For the year ended December 31, 1996
Allowances deducted from assets:
Accounts receivable (for doubtful
receivables) $ 11,303 2298 - (8,623)(a) 4978
Inventory (primarily for obsolescence) 6154 2606 - (2,644)(b) 6116
For the year ended December 31, 1997
Allowances deducted from assets:
Accounts receivable (for doubtful
receivables) $ 4,978 701 - (3,547)(c) 2132
Inventory (primarily for obsolescence) 6116 2826 - (3,498)(b) 5444
Notes: (a) Primarily accounts written off, net of recoveries.
(b) Primarily obsolete parts written off.
(c) Primarily due to the sale of the Rolodex Business and accounts
written off, net of recoveries.
</TABLE>
EXHIBIT 5
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NY 10017
November 9, 1998
Insilco Holding Co.
425 Metro Place North, Fifth Floor
Dublin, Ohio 43017
Ladies and Gentlemen:
We have acted as special counsel to Insilco Holding Co., a
Delaware corporation (the "Company") in connection with the Company's offer
(the "Exchange Offer") to exchange its 14% Senior Discount Notes due 2008 (the
"Exchange Notes") for any and all of its outstanding 14% Senior Discount Notes
due 2008 (the "Old Notes").
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments as we have deemed
necessary or advisable for the purpose of rendering this opinion.
Upon the basis of the foregoing and assuming the due execution
and delivery of the New Notes, we are of the opinion that the Exchange Notes,
when executed, authenticated and delivered in exchange for the Old Notes in
accordance with the Exchange Offer will be valid and binding obligations of
the Company enforceable in accordance with their terms, except (x) as such
enforcement may be limited by bankruptcy, insolvency, fraudulent conveyance or
similar laws affecting creditors' rights generally, (y) as such enforcement
may be limited by general principles of equity, regardless of whether
enforcement is sought in a proceeding at law or in equity and (z) to the
extent that a waiver of rights under any usury or stay law may be
unenforceable.
We are members of the Bar of the State of New York and the
foregoing opinion is limited to the laws of the State of New York, the federal
laws of the United States of America and the General Corporation Law of the
State of Delaware.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement relating to the Exchange Offer. We also consent
to the reference to us under the caption "Legal Matters" in the Prospectus
contained in such Registration Statement.
This opinion is rendered solely to you in connection with the
above matter. This opinion may not be relied upon by you for any other
purpose or relied upon by or furnished to any other person without our prior
written consent except that Star Bank, as Exchange Agent for the Exchange
Offer may rely upon this opinion as if it were addressed directly to it.
Very truly yours,
/s/ Davis Polk & Wardwell
EXHIBIT 23.2
Consent of Independent Auditors
The Board of Directors
Insilco Holding Corporation:
The audits referred to in our report dated January 30, 1998, except as to Note
21, which is as of June 8, 1998, and Note 2, which is as of July 7, 1998,
included the related financial statement schedule as of December 31, 1997, and
for each of the years in the three-year period ended December 31, 1997, included
in the registration statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
We consent to the use of our audit report included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
--------------------------
KPMG Peat Marwick LLP
Columbus, Ohio
November 9, 1998
EXHIBIT 99.1
LETTER OF TRANSMITTAL
INSILCO HOLDING CO.
Offer to Exchange Its
14% Senior Discount Notes due 2008
(Registered Under The Securities Act of 1933)
For Any and All of Its Outstanding
14% Senior Discount Notes due 2008
Pursuant to the Prospectus
Dated November 10, 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON DECEMBER 10, 1998, UNLESS THE OFFER IS EXTENDED.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
STAR BANK, N.A.
By Registered or Certified Mail: By Overnight Delivery or Hand:
Star Bank, N.A. Star Bank, N.A.
425 Walnut Street 425 Walnut Street
6th Floor 6th Floor
Cincinnati, Ohio 45201-1118 Cincinnati, Ohio 45201-1118
Attn: William Sicking Attn: William Sicking
To Confirm by Telephone Facsimile Transmissions:
or for Information: (513) 632-5511
(513) 632-4278
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Old Notes (as
defined below) if Old Notes are to be forwarded herewith. If tenders of Old
Notes are to be made by book-entry transfer to an account maintained by Star
Bank, N.A. (the "Exchange Agent") at The Depository Trust Company ("DTC")
pursuant to the procedures set forth in "The Exchange Offer--Book-Entry
Transfer" in the Prospectus and in accordance with the Automated Tender Offer
Program ("ATOP") established by DTC, a tendering holder will become bound by the
terms and conditions hereof in accordance with the procedures established under
ATOP.
Holders of Old Notes whose certificates (the "Certificates") for such Old
Notes are not immediately available or who cannot deliver their Certificates and
all other required documents to the Exchange Agent on or prior to the Expiration
Date (as defined in the Prospectus) or who cannot complete the procedures for
book-entry transfer on a timely basis, must tender their Old Notes according to
the guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed
Delivery Procedures" in the Prospectus. SEE INSTRUCTION 1. DELIVERY OF DOCUMENTS
TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
ALL TENDERING HOLDERS COMPLETE THIS BOX:
DESCRIPTION OF OLD NOTES TENDERED
<TABLE>
Name(s) and address(es) of Registered Holder(s) Old Notes Tendered
(Please fill in, if blank) (attach additional list if necessary)
<S> <C> <C> <C>
Principal Amount of
Certificate Principal Amount Old Notes Tendered
Number(s)* of Old Notes* (if less than all)**
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Total Amount
Tendered
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders.
** Old Notes may be tendered in whole or in part in denominations of $1,000
and integral multiples thereof. All Old Notes held shall be deemed tendered
unless a lesser number is specified in this column.
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution_____________________________________________
DTC Account Number________________________________________________________
Transaction Code Number___________________________________________________
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)______________________________________________
Window Ticket Number (if any)_____________________________________________
Date of Execution of Notice of Guaranteed Delivery________________________
Name of Institution which Guaranteed______________________________________
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution_____________________________________________
DTC Account Number _______________________________________________________
Transaction Code Number___________________________________________________
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:_____________________________________________________________________
Address:__________________________________________________________________
__________________________________________________________________
Ladies and Gentlemen:
The undersigned hereby tenders to Insilco Holding Co., a Delaware
corporation (the "Company"), the above described aggregate principal amount of
the Company's 14% Senior Discount Notes due 2008 (the "Old Notes") in exchange
for a like aggregate principal amount of the Company's 14% Senior Discount Notes
due 2008 (the "Exchange Notes"), upon the terms and subject to the conditions
set forth in the Prospectus dated November 10, 1998 (as the same may be amended
or supplemented from time to time, the "Prospectus"), receipt of which is
acknowledged, and in this Letter of Transmittal (which, together with the
Prospectus, constitute the "Exchange Offer"). The Exchange Offer has been
registered under the Securities Act of 1933, as amended (the "Securities Act").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Old Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Old Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent is also acting as agent of the Company in connection with the
Exchange Offer) with respect to the tendered Old Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), subject only to the right of withdrawal described in
the Prospectus, to (i) deliver Certificates for Old Notes to the Company
together with all accompanying evidences of transfer and authenticity to, or
upon the order of, the Company, upon receipt by the Exchange Agent, as the
undersigned's agent, of the Exchange Notes to be issued in exchange for such Old
Notes, (ii) present Certificates for such Old Notes for transfer, and to
transfer the Old Notes on the books of the Company, and (iii) receive for the
account of the Company all benefits and otherwise exercise all rights of
beneficial ownership of such Old Notes, all in accordance with the terms and
conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD
NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE
COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND
CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD
NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE
UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS
DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO
COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED HEREBY,
AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION
RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE
EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Old Notes
tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Old Notes. The
Certificate number(s) and the Old Notes that the undersigned wishes to tender
should be indicated in the appropriate boxes above.
If any tendered Old Notes are not exchanged pursuant to the Exchange Offer
for any reason, or if Certificates are submitted for more Old Notes than are
tendered or accepted for exchange, Certificates for such unaccepted or
nonexchanged Old Notes will be returned (or, in the case of Old Notes tendered
by book-entry transfer, such Old Notes will be credited to an account maintained
at DTC), without expense to the tendering holder, promptly following the
expiration or termination of the Exchange Offer.
The undersigned understands that tenders of Old Notes pursuant to any one
of the procedures described in "The Exchange Offer--Procedures for Tendering Old
Notes" in the Prospectus and in the instructions hereto will, upon the Company's
acceptance for exchange of such tendered Old Notes, constitute a binding
agreement between the undersigned and the Company upon the terms and subject to
the conditions of the Exchange Offer. In all cases in which a Participant elects
to accept the Exchange Offer by transmitting an express acknowledgment in
accordance with the established ATOP procedures, such Participant shall be bound
by all of the terms and conditions of this Letter of Transmittal. The
undersigned recognizes that, under certain circumstances set forth in the
Prospectus, the Company may not be required to accept for exchange any of the
Old Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the Exchange Notes be
issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Old Notes, that such Exchange Notes be credited to the account
indicated above maintained at DTC. If applicable, substitute Certificates
representing Old Notes not exchanged or not accepted for exchange will be issued
to the undersigned or, in the case of a book-entry transfer of Old Notes, will
be credited to the account indicated above maintained at DTC. Similarly, unless
otherwise indicated under "Special Delivery Instructions," please deliver
Exchange Notes to the undersigned at the address shown below the undersigned's
signature.
BY TENDERING OLD NOTES AND EXECUTING, OR OTHERWISE BECOMING BOUND BY, THIS
LETTER OF TRANSMITTAL, THE UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE
UNDERSIGNED IS NOT AN "AFFILIATE" OF THE COMPANY, (II) ANY EXCHANGE NOTES TO BE
RECEIVED BY THE UNDERSIGNED ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS
BUSINESS AND (III) THE UNDERSIGNED HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY
PERSON TO PARTICIPATE IN A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES
ACT) OF SUCH EXCHANGE NOTES. BY TENDERING OLD NOTES PURSUANT TO THE EXCHANGE
OFFER AND EXECUTING, OR OTHERWISE BECOMING BOUND BY, THIS LETTER OF TRANSMITTAL,
A HOLDER OF OLD NOTES WHICH IS A BROKER-DEALER REPRESENTS AND AGREES, CONSISTENT
WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE DIVISION OF
CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION TO THIRD PARTIES,
THAT (A) SUCH OLD NOTES HELD BY THE BROKER-DEALER ARE HELD ONLY AS A NOMINEE, OR
(B) SUCH OLD NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A
RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL
DELIVER THE PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING
THE REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH
EXCHANGE NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A
PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN
"UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT).
THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION
RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME
TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER (AS DEFINED BELOW) IN
CONNECTION WITH RESALES OF EXCHANGE NOTES RECEIVED IN EXCHANGE FOR OLD NOTES,
WHERE SUCH OLD NOTES WERE ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES,
FOR A PERIOD ENDING 90 DAYS AFTER THE EXPIRATION DATE (SUBJECT TO EXTENSION
UNDER CERTAIN LIMITED CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS) OR, IF EARLIER,
WHEN ALL SUCH EXCHANGE NOTES HAVE BEEN DISPOSED OF BY SUCH PARTICIPATING
BROKER-DEALER. IN THAT REGARD, EACH BROKER DEALER WHO ACQUIRED OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER"), BY TENDERING SUCH OLD NOTES AND EXECUTING, OR
OTHERWISE BECOMING BOUND BY, THIS LETTER OF TRANSMITTAL, AGREES THAT, UPON
RECEIPT OF NOTICE FROM THE COMPANY OF THE OCCURRENCE OF ANY EVENT OR THE
DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT CONTAINED OR INCORPORATED BY
REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR WHICH CAUSES THE
PROSPECTUS TO OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE
STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE THEREIN, IN LIGHT OF THE
CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING OR OF THE OCCURRENCE OF
CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH
PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF EXCHANGE NOTES PURSUANT TO
THE PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS TO
CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED OR
SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE COMPANY HAS
GIVEN NOTICE THAT THE SALE OF THE EXCHANGE NOTES MAY BE RESUMED, AS THE CASE MAY
BE. IF THE COMPANY GIVES SUCH NOTICE TO SUSPEND THE SALE OF THE EXCHANGE NOTES,
IT SHALL EXTEND THE 90-DAY PERIOD REFERRED TO ABOVE DURING WHICH PARTICIPATING
BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN CONNECTION WITH THE RESALE
OF EXCHANGE NOTES BY THE NUMBER OF DAYS DURING THE PERIOD FROM AND INCLUDING THE
DATE OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE DATE WHEN PARTICIPATING
BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE SUPPLEMENTED OR AMENDED
PROSPECTUS NECESSARY TO PERMIT RESALES OF THE EXCHANGE NOTES OR TO AND INCLUDING
THE DATE ON WHICH THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF EXCHANGE NOTES
MAY BE RESUMED, AS THE CASE MAY BE.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives successors and assigns of the undersigned. Except as
stated in the Prospectus, this tender is irrevocable.
HOLDER(S) SIGN HERE
(See Instructions 2, 5 and 6)
(Note: Signature(s) Must be Guaranteed if Required by Instruction 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Old Notes hereby tendered or on a security position
listing, or by any person(s) authorized to become the registered holder(s) by
endorsements and documents transmitted herewith. If signature is by an
attorney-in-fact, executor, administrator, trustee, guardian, officer of a
corporation or another acting in a fiduciary or representative capacity, please
set forth the signer's full title. See Instruction 5.
________________________________________________________________________________
(Signature(s) of Holder(s))
Date _____________________________________________________________________, 1998
Name(s)_________________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity:_______________________________________________________________________
(Include Full Title)
Address ________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number _________________________________________________
________________________________________________________________________________
(Tax Identification or Social Security Number(s))
GUARANTEE OF SIGNATURE(S)
(See Instructions 2 and 5)
Authorized Signature ___________________________________________________________
Name ___________________________________________________________________________
________________________________________________________________________________
(Please Print)
Date_______________________________________________________________________,1998
Capacity or Title_______________________________________________________________
Name of Firm____________________________________________________________________
Address ________________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number__________________________________________________
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 1, 5 and 6)
To be completed ONLY if the Exchange Notes are to be issued in
the name of someone other than the registered holder whose of the Old Notes
name(s) appear(s) above.
Issue Exchange Notes to:
Name ___________________________________________________________________________
(Please Print)
Address_________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
________________________________________________________________________________
(Taxpayer Identification or
Social Security Number)
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 5 and 6)
To be completed ONLY if Exchange Notes are to be sent to someone
other than the registered holder of the Old Notes whose name(s) appear(s) above,
or to such registered holder(s) at an address other than that shown above.
Mail Exchange Notes To:
Name ___________________________________________________________________________
(Please Print)
Address_________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
________________________________________________________________________________
(Taxpayer Identification or
Social Security Number)
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed if Certificates are to
be forwarded herewith. If tenders are to be made pursuant to the procedures for
tender by book-entry transfer set forth in "The Exchange Offer--Book-Entry
Transfer" in the Prospectus and in accordance with ATOP established by DTC, a
tendering holder will become bound by the terms and conditions hereof in
accordance with the procedures established under ATOP. Certificates, or timely
confirmation of a book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC, as well as this Letter of Transmittal (or facsimile
thereof), if required, properly completed and duly executed, with any required
signature guarantees, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at one of its addresses set
forth herein on or prior to the Expiration Date. Old Notes may be tendered in
whole or in part in the principal amount of $1,000 and integral multiples of
$1,000.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, this Letter of
Transmittal and all other required documents to the Exchange Agent on or prior
to the Expiration Date or (iii) who cannot complete the procedures for delivery
by book-entry transfer on a timely basis, may tender their Old Notes by properly
completing and duly executing a Notice of Guaranteed Delivery pursuant to the
guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed
Delivery Procedures" in the Prospectus. Pursuant to such procedures: (i) such
tender must be made by or through an Eligible Institution (as defined below);
(ii) a properly completed and duly executed Letter of Transmittal (or facsimile)
thereof and Notice of Guaranteed Delivery, substantially in the form made
available by the Company, must be received by the Exchange Agent on or prior to
the Expiration Date; and (iii) the Certificates (or a book-entry confirmation
(as defined in the Prospectus)) representing all tendered Old Notes, in proper
form for transfer, together with a Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees and
any other documents required by this Letter of Transmittal, must be received by
the Exchange Agent within five New York Stock Exchange trading days after the
date of execution of such Notice of Guaranteed Delivery, all as provided in "The
Exchange Offer--Guaranteed Delivery Procedures" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, telex, facsimile or mail to the Exchange Agent, and must include a
guarantee by an Eligible Institution in the form set forth in such Notice. For
Old Notes to be properly tendered pursuant to the guaranteed delivery procedure,
the Exchange Agent must receive a Notice of Guaranteed Delivery on or prior to
the Expiration Date. As used herein and in the Prospectus, "Eligible
Institution" means a firm which is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc. or
a commercial bank or trust company having an office or correspondent in the
United States.
THE METHOD OF DELIVERY OF OLD NOTES THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDER. IF
SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, PROPERLY INSURED, BE USED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD
NOTES SHOULD BE SENT TO THE COMPANY.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), or any Agent's Message in lieu thereof, waives any right to
receive any notice of the acceptance of such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder
(which term, for purposes of this document, shall include any participant
in DTC whose name appears on a security position listing as the owner of
the Old Notes) of Old Notes tendered herewith, unless such holder(s) has
completed either the box entitled "Special Issuance Instructions" or the
box entitled "Special Delivery Instructions" above, or
(ii) such Old Notes are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee the
signature(s) on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Old Notes" is inadequate, the Certificate number(s) and/or the
principal amount of Old Notes and any other required information should be
listed on a separate signed schedule which is attached to this Letter of
Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Old Notes will be
accepted only in the principal amount of $1,000 and integral multiples thereof.
If less than all the Old Notes evidenced by any Certificate submitted are to be
tendered, fill in the principal amount of Old Notes which are to be tendered in
the box entitled "Principal Amount of Old Notes Tendered (if less than all)." In
such case, new Certificate(s) for the remainder of the Old Notes that were
evidenced by your old Certificate(s) will only be sent to the holder of the Old
Note, promptly after the Expiration Date. All Old Notes represented by
Certificates delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time on or prior to the Expiration Date. In order for a withdrawal to be
effective on or prior to that time, a written notice of withdrawal must be
timely received by the Exchange Agent at one of its addresses set forth above or
in the Prospectus on or prior to the Expiration Date. Any such notice of
withdrawal must specify the name of the person who tendered the Old Notes to be
withdrawn, identify the Old Notes to be withdrawn (including the principal
amount of such Old Notes) and (where Certificates for Old Notes have been
transmitted) specify the name in which such Old Notes are registered, if
different from that of the withdrawing holder. If Certificates for the Old Notes
have been delivered or otherwise identified to the Exchange Agent, then prior to
the release of such Certificates, the withdrawing holder must submit the serial
numbers of the particular certificates for the Old Notes to be withdrawn and a
signed notice of withdrawal with signatures guaranteed by an Eligible
Institution, unless such holder is an Eligible Institution. If Old Notes have
been tendered pursuant to the procedures for book-entry transfer set forth in
the Prospectus under "The Exchange Offer--Book-Entry Transfer," any notice of
withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawal of Old Notes and otherwise comply with the procedures of
such facility. Old Notes properly withdrawn will not be deemed validly tendered
for purposes of the Exchange Offer, but may be retendered at any time on or
prior to the Expiration Date by following one of the procedures described in the
Prospectus under "The Exchange Offer--Procedures for Tendering Old Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes which
have been tendered for exchange but which are not exchanged for any reason will
be returned to the holder thereof without cost to such holder (or, in the case
of Old Notes tendered by book-entry transfer into the Exchange Agent's account
at DTC pursuant to the book-entry procedures described in the Prospectus under
"The Exchange Offer--Book-Entry Transfer" such Old Notes will be credited to an
account maintained with DTC for the Old Notes) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Old
Notes tendered hereby, the signature(s) must correspond exactly with the name(s)
as written on the face of the Certificate(s) without alteration, enlargement or
any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different names on several
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by the
Company, proper evidence satisfactory to the Company of such persons' authority
to so act must be submitted.
When this Letter of Transmittal is signed by the registered holder(s) of
the Old Notes listed and transmitted hereby, no endorsement(s) of Certificate(s)
or written instrument or instruments of transfer or exchange are required unless
Exchange Notes are to be issued in the name of a person other than the
registered holder(s). Signature(s) on such Certificate(s) or written instrument
or instruments of transfer or exchange must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Old Notes listed, the Certificates must be endorsed
or accompanied by a written instrument or instruments of transfer or exchange,
in satisfactory form as determined by the Company in its sole discretion and
executed by the registered holder(s), in either case signed exactly as the name
or names of the registered holder(s) appear(s) on the Certificates. Signatures
on such Certificates or written instrument or instruments of transfer or
exchange must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Exchange Notes are to be
issued in the name of a person other than the signer of this Letter of
Transmittal, or if Exchange Notes are to be sent to someone other than the
signer of this Letter of Transmittal or to an address other than that shown
above, the appropriate boxes on this Letter of Transmittal should be completed.
Certificates for Old Notes not exchanged will be returned by mail or, if
tendered by book-entry transfer, by crediting the account indicated above
maintained at DTC. See Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole discretion, all
questions as to the form, validity, eligibility (including time of receipt) and
acceptance for exchange of any tender of Old Notes, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
tenders of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right, in its
sole discretion, to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender Old Notes in the Exchange Offer). The interpretation of the
terms and conditions of the Exchange Offer as to any particular Old Notes either
before or after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) by the Company shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with the tender of
Old Notes for exchange must be cured within such reasonable period of time as
the Company shall determine. Neither the Company, the Exchange Agent nor any
other person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall any
of them incur any liability for failure to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at its address and
telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Old Notes have been lost, destroyed or stolen, the holder should
promptly notify the Exchange Agent. The holder will then be instructed as to the
steps that must be taken in order to replace the Certificate(s). This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost, destroyed or stolen Certificate(s) have been followed.
10. SECURITY TRANSFER TAXES. Holders who tender their Old Notes for
exchange will not be obligated to pay any transfer taxes in connection
therewith, except that holders who instruct the Company to register Exchange
Notes in the name of or request that Old Notes not tendered or not accepted in
the Exchange Offer to be returned to, a person other than the registered
tendering holder will be responsible for the payment of any applicable transfer
tax thereon.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF),
OR AN AGENT'S MESSAGE IN LIEU THEREOF, AND ALL OTHER REQUIRED
DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT
ON OR PRIOR TO THE EXPIRATION DATE.
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
For Tender Of
14% Senior Discount Notes due 2008
of
INSILCO HOLDING CO.
This Notice of Guaranteed Delivery or one substantially equivalent
hereto must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Company's (as defined below) 14% Senior Discount Notes due
2008 (the "Old Notes") are not immediately available, (ii) Old Notes, the Letter
of Transmittal and any other documents required by the Letter of Transmittal
cannot be delivered to Star Bank, N.A. (the "Exchange Agent") on or prior to the
Expiration Date (as defined in the Prospectus referred to below) or (iii) the
procedures for book-entry transfer cannot be completed on a timely basis. This
Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile
transmission, overnight courier, telex, telegram or mail to the Exchange Agent.
See "The Exchange Offer - Guaranteed Delivery Procedures" in the Prospectus
dated November 10, 1998 (which, together with the related Letter of Transmittal,
constitutes the "Exchange Offer") of Insilco Holding Co., a Delaware corporation
(the "Company").
The Exchange Agent for the Exchange Offer is:
STAR BANK, N.A.
By Hand or Overnight Delivery: Facsimile Transmissions: By Registered Or
(Eligible Institutions Only) Certified Mail:
Star Bank, N.A. Star Bank, N.A.
425 Walnut Street (513) 632-5511 425 Walnut Street
6th Floor 6th Floor
Cincinnati, Ohio 45201-1118 To Confirm by Telephone Cincinnati, Ohio
Attention: William Sicking or for Information Call: 45201-1118
Attention:
William Sicking
(513) 632-4278
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA A
FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED ON THE LETTER
OF TRANSMITTAL.
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(Not to be used for Signature Guarantee)
The undersigned, a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States, hereby guarantees to deliver to the Exchange
Agent, at one of its addresses set forth above, either the certificates for all
physically tendered Old Notes, in proper form for transfer, or confirmation of
the book-entry transfer of such Old Notes to the Exchange Agent's account at The
Depository Trust Company ("DTC"), pursuant to the procedures for book-entry
transfer set forth in the Prospectus, in either case together with one or more
properly completed and duly executed Letter(s) of Transmittal (or facsimile
thereof) and any other documents required by such Letter of Transmittal, within
five New York Stock Exchange trading days after the date of execution of this
Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Old Notes tendered hereby to the Exchange Agent within the
time period set forth above and that failure to do so could result in a
financial loss to the undersigned.
Name of Firm:______________________ _________________________
(Authorized Signature)
Address:___________________________ Title:_____________________
___________________________________ Name:____________________
(Zip Code) (Please type or print)
Area Code and Telephone Number: Date:_____________________
- ----------------------------------
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF
GUARANTEED DELIVERY. ACTUAL SURRENDER OF OLD NOTES
MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A
PROPERLY COMPLETED AND FULLY EXECUTED LETTER OF
TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
